In recent years, the industrial construction sector in the United States has experienced a surge of activity, resulting in a significant increase in new inventory. However, this trend is now slowing down as the construction pipeline begins to cool off. According to Cushman & Wakefield’s “Americas Industrial Construction Cost Guide,” building new industrial properties is becoming increasingly challenging for developers and tenants due to high costs, interest rates and labor constraints.
The guide analyzed 45 markets across North and South America with a focus on small, medium and large distribution centers. It revealed that while construction costs have decreased from their peak levels, they are still rising at a moderate pace of 2.6% year-over-year as of March 2024. This increase is primarily driven by inflationary pressures but remains within the average range over the past decade.
One major challenge facing developers in this market is finding skilled laborers for key positions. The guide noted that there are currently more job openings than hires being made – an imbalance that has persisted since February 2024 when open positions exceeded hires by 9%. As such, labor costs have also been on an upward trajectory with wages increasing by 4.9% year-over-year compared to private earnings which rose by only 4/2%.
The rise of onshoring and nearshoring trends has had a positive impact on development activity in southern U.S states like Texas as well as Mexico where production facilities can be built at lower cost due to proximity advantages.The pandemic-induced supply chain disruptions highlighted the need for companies to bring production closer home leading many businesses including those supported directly or indirectly by government policies aimed at enhancing national security,to relocate operations closer home.Mexico,in particular,is seen favorably because it offers both low-costs options along with close proximity access into US markets.
For those seeking cost-effective locations,Latin American cities such Guadalajara,Mexico City,and Monterrey offer attractive options as do Dallas and Houston in the U.S. On the other hand, Canadian cities like Calgary,Vancouver,and Toronto along with U.S markets such as Seattle,Cleveland,and Miami are among the most expensive for industrial construction projects.
In conclusion, while industrial construction costs have decreased from their peak levels,the market remains challenging due to various factors including high costs,labor constraints and inflationary pressures. However,onshoring and nearshoring trends continue to drive development activity in key southern U.S states like Texas,Mexico,and Latin American cities offering cost-effective options for businesses looking to expand or relocate their operations.
