For years, Quire has analyzed tens of thousands of Reports from dozens of market lines generated all around the world. As Quire works to provide productivity-enhancing solutions for Clients, we’ve developed unique time-tracking and process data from the firms that use our platform. We’ve created MarketWatch to share this data with report-writing professionals both in and outside the Quire solution.
Navigating the Impact of Lockdowns, Workforce Rebound, and Economic Uncertainty in Commercial Real Estate Construction
The implementation of lockdown measures in Q2 2020 resulted in disruptions and delays for numerous ongoing and planned commercial real estate construction projects. Consequently, there was a notable decline in Construction Progress Monitoring Reports during Q2 2020, as indicated by QuireSight data. However, after a period of assessment, stakeholders resumed work on existing construction projects during the latter half of 2020, leading to a reduction in the backlog of projects. This positive development correlated with a subsequent rise in Construction Progress Monitoring Reports following the low point in Q2 2020.
As 2021 unfolded, the gradual relaxation of restrictions coincided with a noteworthy rebound in construction employment, as evidenced by CCI Staffing levels. This resurgence in the workforce reinvigorated construction projects, giving rise to a fresh backlog of initiatives. There was a subsequent surge in the volume of Construction Progress Monitoring Reports, reflecting the increased activity in the sector. By Q1 2022, the volume of Construction Progress Monitoring Reports had rebounded to levels akin to those of Q1 2020, mirroring the restoration of construction backlog and employment figures comparable to those observed during the first quarter of 2020.
At the onset of 2022, the Federal Reserve initiated a series of interest rate hikes in response to mounting inflationary pressures, as depicted in the Fed Funds Rate chart. This move by the Fed underscored the inevitability of further interest rate increases, injecting a fresh wave of uncertainty into the commercial real estate market and dampening transaction activities. Furthermore, high vacancy rates persisted in office properties nationwide as tenants continued to embrace remote work arrangements and consolidated their office spaces into premium locations, embodying the prevailing trend known as the “Flight to Quality.”
EFFR = Effective Federal Funds Rate | Volume = Effective Federal Funds Volume
The confluence of these factors prompted many property owners to allocate their available capital towards enhancing existing properties instead of acquiring new ones, aiming to bolster their capacity to attract tenants and elevate rental rates. This generated a surge in construction projects and contributed to a growing backlog of initiatives. As a result, there was a pronounced increase in Construction Progress Monitoring Reports produced in Quire throughout 2022, a notable contrast to the decline observed in other Report types due to the decrease in property transactions.
Outlook: Insights into Commercial Real Estate’s Future
In March 2023, there was a noteworthy decline in the construction backlog, which reached its lowest level since August 2022. However, it’s important to note that this level aligns with the historical backlog preceding the disruptions of 2020. Concurrently, construction employment has receded from its peak in early 2022 but still remains below pre-2020 levels. This suggests that the demand for Construction Progress Monitoring Reports might persist at elevated levels in the near future as the reduced labor force grapples with an existing backlog.
Nonetheless, as lending slows down, existing capital gets exhausted, and commercial mortgages approach maturity with significantly higher interest rates, a pertinent question arises: Will the industry experience a decline reminiscent of the challenges faced in 2020? By leveraging QuireSight, Report data will be monitored and utilized in future MarketWatch installations. Stay tuned!
This MarketWatch release used the following references:
- Effective Federal Funds Rate – FEDERAL RESERVE BANK of NEW YORK (newyorkfed.org)
- ABC’s March Construction Backlog Indicator Down to Lowest Level Since August 2022 | News Releases
- Construction Employment Decreases By 9,000 in March, Says ABC | News Releases
- Will CRE Construction Hold Steady in 2023? – CPE (commercialsearch.com)
- As Multifamily Construction Starts Slow ‘Dramatically,’ REITs See Opportunity (bisnow.com)