MSCA State of Retail: Trends in Construction

When reflecting on the last decade in construction, most anyone will tell you there have been a lot of ups and downs. But with those highs and lows, the construction industry is flourishing greater now than in years past. This upturn yields advantages, and challenges, for many folks, including landlords, commercial real estate brokers and architectural firms.

There are three areas where gradual change and positive transformation within the construction industry are taking place. These areas include construction labor and costs, tenant investments, and construction design.

Labor Shortage and Rising Construction Costs: Skilled Labor Outlook

Over the last year, stated in the September 2018 LinkedIn Workforce Report, “hiring was 4.1% lower in August 2018 than in August 2017. This is in correlation to a skills gap – which is a mismatch between the skills employers need and the skills workers have.” In reviewing the report, Project Management ranked at the top (6,659 people) of the skills surpluses in Minneapolis-St. Paul, but not one single trade skill made the list.

Workspace Property Trust’s VP Regional Director, Bradley Butler notes that the, “unemployment rate in Minnesota in August was 2.9% with no secret that hiring is much more difficult than it was five years ago in all industries.”

There is a large demand of construction projects with a low supply of skilled labor. This doesn’t alleviate any pressure for contractors who are trying to complete more work in less time given the lack of proper resources. Since construction companies are challenged with filling skilled trade positions, owners and tenants can come to expect longer project schedules. If the current expectation is to build ‘XYZ’ project in 30-days, owners and tenants should allow for a 45- to 60-day timeline…

Construction Code Changes

It’s true – construction code changes increase construction costs. Across the U.S., code books are published every three years with new codes and/or code clarifications. Todd Dankert, owner of Gator Electric, shares that, “the biggest change as of January 2017 was Minnesota adopting the new energy code, which adds about 10% cost to an average construction project.” This code requires a maximum of 0.9 watts of electricity per square foot prompting designers, electricians and building owners to innovate their lighting layout and selections.

The new Minnesota energy code also requires offices and open workspaces to have motion and occupancy sensors. A standard light switch runs about $80.00 a switch. A motion sensor is about $120.00. This calculates to a $40.00 upgrade charge per switch within each plan…

Trade War & Tariffs

The full impact of the March 2018 tariffs has been slower than expected in making an impression – as it relates to construction. The rising prices on raw materials continue and are not expected to taper off any time soon, as the tariffs have had longer to take effect and the market continues to boom.

Manufacturing and fabrication companies, such as Linco Fab, Inc., located in Saint Michael, Minn., have been affected by the tariffs. Brian Schmitz weighed in on the matter, sharing that, “steel is a commodity – and, like fuel – it goes up and down based on macroeconomic motives. Since July 2018, prices have significantly increased. Tube steel has gone up about 50 percent since March and it’s directly related to the tariffs…”

Ways to Combat the Labor Shortage: Early Adoption Programs

Contest the industry’s labor shortage by supporting local organizations who have outreach programs that target high school and post-secondary students. Engaging the younger crowd early on will increase industry awareness and breakdown negative perceptions. In the Twin Cities, the TwinWest Chamber of Commerce has created a program called Opportunity Connect, a new technology platform seamlessly connecting and supporting business through education with career connected learning experiences in response to urgent talent needs. Construct Tomorrow is an organization who aim to bring awareness of the variety of opportunities available in the Building and Construction Trades.

Dunwoody Technical College partners with Girl Scouts River Valleys each year at their Power Girls Camp to spark interest in the construction trades for young girls. Additionally, Dunwoody’s Construction Sciences program has 511 students enrolled, which is up about 50 students (11%) from last year. This program aims to prep students for all types of construction jobs…

Reducing Construction Costs without Sacrificing Design and Exceeding Tenant Spend Allowance

On average, 8 out of 10 commercial building tenants spend anywhere from 20 to 45 percent over their allotted allowance. And, these are out-of-pocket investments rather than through amortization. This phenomenon is exciting for landlords, contractors performing the scope of work and for architectural firms…

Conclusion

It will be important to bring awareness to younger generations of the construction industry as the shortage in labor is expected to amplify. It will take time to backfill the voids of well-seasoned labor who are currently exiting the market. 

Tenants are spending 20 to 45 percent over most allowances. This creates positive impact on the retainage, maintenance and re-lease of properties. As this popular trend gains more traction, contractors and key players can come to expect larger scopes and more project pipeline.

Lastly, there are several tactics that can be employed to reduce construction costs without sacrificing design. A few of those strategies include selecting contractor bid alternates, value engineering, 3D visuals, thorough site layout and project site walk-throughs.