2021 looks to be a challenging year for construction, reports Jones Lang LaSalle (JLL), a worldwide real estate conglomerate. JLL predicts a 5% to 8% drop in overall nonresidential construction.
The first point of the report states that nonresidential construction dropped by 24 percent in 2020; this reveals a lack in work backlogs for 2021, even if volume picks up later in the year. JLL does expect production to return to pre-pandemic rates by 2022.
The retail, entertainment, and hotel sectors have, unsurprisingly, experienced the most significant impact. Distribution and healthcare, on the other hand, have seen the most growth. Both trajectories seem to make sense in the pandemic’s shadow. Manufacturing, multifamily, office, and education sit somewhere in the middle, with office performing best in that group.
JLL’s report bases estimates on three key factors: construction starts, construction-industry sentiment, and forecast construction spending.
The report also indicates sharp divisions between sectors. The gap between the best and worst affected sectors is “now wider than anything seen in the last recession.”
While construction costs dropped at the beginning of the pandemic, Q4 2020 materials prices increased. JLL expects most continued growth to occur in materials. Lumber and plywood alone experienced 36.1% cost increases. Copper and brass mill shapes followed at 20%. Plastic increased by 6%.
Counter to rising material costs, weak demand drove aggressive project bidding, which ratcheted down construction company margins on awarded projects. JLL does not believe the construction industry can sustain this trend; changes impend in the offing.
The new report from JLL construction predicts difficulties for construction companies due to rising material costs in the face of lighter work backlogs and heavy competition for new projects. However, JLL also predicts normalization in the industry by the end of 2021.