Leopardo’s 2017 Construction Economics Report shows year-over-year construction spending increase of 4.2%

Leopardo Companies, a construction firm serving Chicago and the Midwest, has released its 2017 Construction Economics Report and Outlook, an in-depth analysis of factors that impact development, renovation and build-out costs in commercial facilities, including the office, industrial/manufacturing, retail, multifamily, healthcare and lodging sectors.

Nationally, year-over- year construction spending increased by 4.2 percent in December 2016, as total volume reached an estimated $1.182 trillion. The pace of growth, however, was less than in 2015, when volume increased by 8.7 percent. The slowdown in growth was due to firms pulling back on capital expenditures and speculative development amid concerns about the global economy, political uncertainty, volatility in energy prices, rising construction labor costs and a cautious environment for construction financing.

Chicago and suburban areas experienced construction gains in the office, industrial, healthcare and multifamily sectors, while volume was flat in the retail and homebuilding sectors. The Chicagoland market also saw a 1.4 percent drop in construction employment, compared to a national average increase of 2.2 percent. The loss of construction jobs exacerbates the challenge of rising labor costs in the sector, which will continue into 2017 and beyond.

“We expect to see the construction market resume its healthy pace of growth this year, after a slight slowdown in the second half of 2016 due in part to the uncertainty of the presidential election,” said Leopardo Vice President Mark Yanik. “Although it’s too soon to know the impact of the Trump administration on demand for commercial real estate, some early signs are potentially favorable to our industry, such as plans to withdraw from the Trans-Pacific Partnership, renegotiate the North American Free Trade Agreement, and ease banking regulations.”

Key findings in the report include:

Office construction spending grew 20.9 percent during 2016, driven by growth of the technology sector. Office space will continue to be in high demand in cities like Chicago that are well-suited to millennials’ desire for live-work- play neighborhoods. However, companies that are concerned about high labor cost are increasingly interested in lower-cost markets like Salt Lake City, Denver and San Antonio.

Construction spending in the U.S. manufacturing sector contracted 4.3 percent in 2016 after a record-setting 33.3 percent growth rate in 2015. In the Chicago area, however, industrial/manufacturing construction reached an all-time high last year, as record levels of net absorption reduced occupancies and increased rental rates across the region.

U.S. healthcare construction spending grew 1.7 percent to $41.4 billion by the end of 2016, down 5.4 percent from the previous year. Rising healthcare costs have prompted a shift from hospitals to outpatient facilities, driving demand for medical office buildings and helping to backfill vacancies in retail strip centers. This trend extends to the Chicago area, where new regional clinics are under way to be closer to patient populations.

Download the full 2017 Construction Economics Report and Outlook for free.