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  • Writer's pictureE.R.Cornwell

Increased Construction Costs Over The Past Decade

In the last ten years, there has been a significant increase in building costs related to industrial real estate. This can be attributed to various factors, including rising labor costs, increased demand for building materials, and a shortage of skilled labor. If even one of these elements increases it changes an investment's pro-forma; however, in recent history, all of them have been increasing which is making it more and more difficult to peg down returns for developers and operators.

One of the primary factors driving up building costs is the increasing cost of labor. As the economy has improved, competition for skilled labor has intensified, and wages have increased. This has led to higher construction costs for industrial real estate developers. Additionally, many construction workers are reaching retirement age, and there is a shortage of skilled labor to replace them. In fact, in most major, expanding markets the labor shortage has caused delays in terms of years and caused investors to miss entire market cycles.

Another factor contributing to the rising cost of building industrial real estate is the increased demand for building materials. The global pandemic has disrupted supply chains, leading to a shortage of many essential building materials, such as lumber, steel, and concrete. This has driven up prices for these materials, making construction more expensive. Now, we are not proponents of continuing the "pandemic" narrative overall - but what COVID-19 did show is how fragile the systems were that we relied up on supply building materials on a global level.

Moreover, the implementation of new regulations and building codes has also contributed to the increase in building costs. New building codes are often stricter, requiring builders to use more expensive materials and implement more complex designs, which can increase the cost of construction.

Furthermore, the increase in e-commerce and the rise of online shopping has led to a surge in demand for industrial real estate. This has caused developers to compete for available land, driving up land prices and making construction more expensive.

In conclusion, building costs related to industrial real estate have increased significantly over the past decade. Factors such as rising labor costs, increased demand for building materials, and a shortage of skilled labor have all contributed to this trend. While it remains unclear whether this trend will continue in the coming years, it is clear that industrial real estate developers must navigate these challenges to remain competitive and deliver projects on budget and on time.

If you are thinking about investing in industrial or other commercial real estate, please reach and let one of our professionals help guide your investment decision. 480-951-1212 /

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