Construction costs are up, but so are opportunities for growth

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What does this mean for tenants?

There is more new construction across the markets, creating an expanding menu of options. This is good, as tenants now have some rent relief along with newer, more modern space. For office tenants, the majority of new construction is occurring in Houston, New York City and Dallas. Industrial building is focused on Inland Empire, Dallas and Chicago. And Dallas, Boston and L.A. saw high levels of retail construction.

What does this mean for developers?

Cost of construction will increase in 2015, despite declining materials costs, as high wages drive up labor costs. Wages will continue to grow as unemployment declines, due to low worker supply. The supply of unemployed construction workers will dwindle further, as construction demands remain high across the country. In order to save money, developers and landlords should look at projects in markets like Chicago and Seattle, where replacement costs are relatively low.

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