Rising Cost of Construction Materials Puts Contractors in a Bind
National Real Estate Investor
By Matt Hudgins
The dramatic slowdown in commercial real estate development in recent years due to the deep recession and its lingering effects has prevented a supply glut, but wiped out thousands of construction jobs in the process. At mid-year 2011, builders who have managed to stay in business are now finding their profits squeezed by rapidly rising costs.
...For developers and construction contractors, thin profit margins in 2011 compound the larger challenge of anemic demand since the onset of the recession.
"We're not going to need [new] office buildings, industrial buildings or retail buildings for quite some time except in very specific places for very specific reasons," says Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles.
The U.S. must create another seven million jobs just to get back to the employment level that existed before the recession, according to Green. That will take about three years at the current pace of job growth, so there may not be much need for commercial real estate development until 2014.
"Shopping centers and distribution centers are not needed if people are not buying stuff," says Green. "Outside of the most prestigious properties and locations, it's hard to see any recovery in office anytime soon."