JLL Webinar Speakers Detail Construction Challenges and How to Mitigate Them

Civic Construction has topped off 830 Brickell in Miami at 55 stories. (Photo courtesy of Golden Dusk Photography)

CHICAGO — Despite economic pressures such as inflation, supply chain issues and workforce shortages, the construction industry continues to experience strong demand. Andrew Volz, construction research lead at JLL, estimates that several areas of real estate development are going to see sizable increases in economic activity.

“There’s demand for product across a range of sectors, and there’s a need for a renewed, reimagined built environment coming out of COVID,” said Volz. “We’re seeing that strong momentum going into any sort of economic crisis that may be coming.”

Volz made the comments during a Sept. 27 Construction Outlook webinar from Chicago-based JLL.

Volz additionally emphasized the importance of infrastructure investments, which have a notable impact on the country’s gross domestic product (GDP). He estimates that for every dollar spent on infrastructure, the GDP will increase by $1.60 to $1.80.

Infrastructure investments also create viable spaces for new investment by creating new access and supplying necessary support structures for businesses. “We are in a wide reshuffling of demographics and population, as well as the built environment,” he explained. “Infrastructure creates new priorities and allows new opportunities to emerge.”

The risks of high demand

Julie Hyson, managing director of project and development services at JLL, acknowledged the risks associated with high demand, construction spend and activity — namely increased costs and scheduling impacts. Hyson suggested three strategies to mitigate potential risks going forward.

While it is important to have a clear goal established by the client and shared with the teams responsible for the work, Hyson said that flexibility in procurement strategies and contract mechanisms will be integral to projects in the future. This will allow teams to respond to changing market conditions without losing sight of end goals for clients.

Additionally, Hyson emphasized the importance of a capital planning strategy, the process of defining financial objectives and translating those objectives into strategic and actionable plans. This, Hyson expressed, is an increasingly critical tool in planning and implementing projects.

“You all may be familiar with the law of planning, which says that for every minute spent in planning, we save 10 to 12 minutes during execution.”

Finally, Hyson suggested partnering with vendors to acquire sufficient support and the right skill sets to deliver on capital plans.

“We need to really trust the experts right now, and treat them as partners,” she said. “Having a partner in place can help you to quickly mobilize and bridge gaps on your internal team. It’s crucial for the execution of those capital plans.”

Materials costs and supply chain shortages

Webinar speakers noted the construction industry is continuing to face longstanding challenges. Materials costs have continued to rise over time, while supply chain problems have emerged and dissolved somewhat haphazardly, according to Hyson.

While Volz estimated that the costs of petroleum-based products such as fuel and furnishings will begin to stabilize in the coming months, alongside recent declines in the costs of lumber and metal, he acknowledged that there is potential for cost increases to return across all materials.

“Largely, the problems have moved away from the raw materials like copper and steel and are moving into other areas, such as manufacturing goods,” Volz explained. “This has disproportionate risk in any foundational component building systems that are shared across a variety of things.”

Furthermore, the need for construction projects will remain strong regardless of costs.

To mitigate the risks, Hyson once again suggested providing design and construction teams with the flexibility to source alternative materials when supply-chain issues occur.

Hyson also advised engaging and forming partnerships with general contractors and key trade partners early in the development process, as well as to consider issuing funding work and purchase orders early in the process so that equipment and materials can be pre-purchased.

Workforce shortages

Demand for labor in the construction sector is strong. There were approximately 400,000 open construction jobs in April, and while that number declined somewhat in June and July, Volz noted that it has begun climbing again in August and September. Total employment, he said, is back above pre-pandemic levels. The unemployment rate currently sits at approximately 4 percent.

According to Volz, 46 percent of construction firms are looking to expand their workforce; 40 percent are not looking to expand, but are planning to hold on to their current staff as best they can. Only about 14 percent of firms are considering downsizing.

In the face of high demand, however, many construction firms are struggling to garner the staff to keep up. A recent annual workforce survey conducted by the Associated General Contractors of America in conjunction with Autodesk found that, out of a total 1,266 individuals polled from a broad range of construction firm types and sizes, 91 percent reported having trouble filling positions.

Both Volz and Hyson recommended “short term mitigation” to address the challenges of the construction labor shortages.

Over the next four to eight years, Hyson recommended that project managers track union agreements and labor increases in their local markets. This will help project management, general contractors and owners go into a project with an understanding of what expenses and timing are likely to look like.

Hyson strongly encouraged contractors to ask for material and labor escalations during the proposal phase. This will offer insights into what costs are anticipated to be and help project managers to understand the current state of the market, allowing them to make informed budgetary decisions and manage the escalation of costs throughout the construction phase.

Finally, Hyson recommended expediting contract execution.

“Bids are generally good for 90 days,” she explained. “If we want to avoid cost escalation, we’ve got to convert the bids to a contract within that time. Our vendors need to be able to prepare to adequately resource projects, and this is one of the ways that we can better support that and get quality and manage risk.”

— Channing Hamilton

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