The Structural Shift That Could Transform Real Estate

Is Real Estate Construction Entering a Prolonged Downturn? ​

Commercial Real Estate Construction Set To Decline Dramatically ​

• New development expected to drop across property types — including apartments and industrial — which noted all-time high supply in 2024 and 2023, respectively ​

• Office and retail construction has already been minimal over the past few years, with causes likely extending beyond the real estate cycle ​

• Long-term supply constraints support existing property performance, aiding rent growth, occupancy and valuations over time ​

Construction Sector Faces Labor Shortages And Skills Gaps ​

• Baby Boomer retirements are depleting the construction workforce, shrinking the pool of experienced workers in the sector ​

• Younger generations are prioritizing college education over trades, limiting the pipeline of new construction talent ​

• A potential slowdown in immigration could further exacerbate skilled construction labor shortages and constrain real estate supply ​

Capital And Material Costs May Worsen Construction Challenges ​

• Construction loans now carry interest rates typically above 8%, limiting access to financing for new development projects ​

• Prices for construction materials like lumber, steel and cement could rise if President-Elect Trump institutes new tariffs on imports ​

• Higher financing and material costs may further suppress development, compounding long-term supply constraints ​

*Index: 2016=100, not seasonally adjusted​
Pandemic period not shown due to outsized impact of supply chain issues on the price of softwood lumber ​
Sources: Marcus & Millichap Research Services, BLS ​

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