Is Downtown's Construction Boom Coming to An End?
Is Downtown's Construction Boom Coming to An End?
Costs for construction materials used in San Diego’s newest buildings are rising fast, and some in the industry say it might slow the building boom that has altered downtown’s skyline since the end of the recession.
Slowed rent growth and increased labor costs are also seen as problems for the building industry. The price of steel — crucial for residential skyscrapers and high-tech office buildings — has risen dramatically since the Trump administration announced tariffs in March on nations importing to the United States.
The benchmark price for steel this week was up 31 percent from the beginning of the year, said commodities tracker S&P Global Platts. Prices for aluminum also shot up when tariffs were announced but have stabilized to about where they were at the start of the year.
There are enough major building projects ongoing, especially downtown, that it might be a while before anyone notices a slowdown in construction. Companies like Canadian-based Bosa Development have no option but to continue construction on major projects, such as its planned tower off Broadway that will be the tallest residential building in San Diego County’s history.
“It’s ridiculous,” said Nat Bosa, president of the company, said of steel price increases. “It’s costing us a few million bucks more.” Bosa Development has left its mark on the skyline in recent years, constructing the 41-story condo tower Pacific Gate off of Harbor Drive and the 43-story condo tower Electra on E Street.
Bosa said rising material costs mean increasing housing costs for renters and condo buyers. The high cost of steel transfers to more than just the frame of the building but to appliances and other in-unit features, he said.
Most developers and analysts are hesitant to say material costs will slow down the building boom. Yet James Weber, director of cost estimating for Xpera Group, said it only makes sense for developers to at least consider holding off on starting construction. He said builders must figure out before a project starts if materials will go through the roof — or risk losing their shirts.
“Say your project is underway and everything goes up 25 percent, you’ve blown through your steel pricing,” Weber said. “Then, your project could be at risk for future funding or loan releases, or even being built if you didn’t factor that in.” But, it’s not just tariffs that have caused the rise in material costs. Weber said the zigzagging costs of aluminum, copper and lumber will make charting costs difficult, as will increasing labor costs.
Other factors:
Rising costs for workers and a slowdown in rent increases are expected to take a bite out of the multifamily market. Even smaller, wood-frame buildings are feeling the pinch.
Labor: A lack of skilled workers for construction is seen as a hurdle for builders in the coming years. Construction employment increased by 303,000 jobs in a year as of August, said the Associated General Contractors of America.
Hourly earnings in the industry averaged $29.86 an hour in July, an increase of 3.2 percent in a year. Association officials said they would likely have added more jobs but are struggling to find skilled workers.
“Education officials can also do more to explain to students that construction pays better than most jobs, typically doesn’t require an expensive four-year degree and offers significant opportunities for advancement,” said Stephen Sandherr, the association’s CEO, in a news release.
A national survey by the association and Autodesk found 70 percent of construction firms reported having a hard time finding qualified craft workers that make up the majority of the construction workforce.
Peter Bridge, project manager for subsidized housing general contractor Sun Country Builders, said the cost of prevailing wage workers has been his biggest issue.
Prevailing wage is typically based on collective bargaining agreements and is higher than the pay of an average worker. Bridge must use prevailing wage workers because a lot of the money earmarked for subsidized housing requires it. The problem is there is a limited number of prevailing wage workers, so subcontractors can request much higher costs than past years.
Lumber: The cost to build smaller multi-family buildings, or even single-family, homes, has risen faster than the pace of inflation.
After a slowdown in building during the Great Recession, home building has increased throughout the nation. That means a shortage of lumber as builders increase output to meet the pent-up demand.
As of June, lumber prices had added nearly $9,000 to the price of a new single-family home since January 2017, said the National Association of Home Builders/Wells Fargo Housing Market Index.
The national home building association cites recent tariffs on Canadian softwood lumber from the Trump administration and increased home building as major reasons for the price increase. Stockpiling materials by builders is very rare, even though it happens in some industries like national defense.
Rent: Rent prices are still going up, but they have slowed considerably compared to past years and the influx of new apartments has meant more open units.
The vacancy rate is now around 4.3 percent for apartments in San Diego County. That’s about the same rate it has been since the end of 2017 when hundreds of new apartments opened, according to real estate tracker CoStar’s database of 255,406 units.
The vacancy rate was 5.2 percent at the start of 2015 but dropped to 4 percent by the start of 2016.
New apartment complexes have the highest vacancy rates, according to CoStar. East Village’s newest tower Shift — known for its orange 240-foot tower — has a vacancy rate of 73.6 percent. It has 368 apartments and opened this spring. AV8, a 130-unit aviation-themed complex in Little Italy that opened this spring, has a vacancy rate of 76.9 percent.
The average rent hit a record $1,887 a month in March, said San Diego-based MarketPointe Realty Advisors’ latest report. In the six months previous, rent had increased 2 percent — a big slowdown compared to the 20 percent rise since March 2015.
Darcy Miramontes, executive vice president for commercial real estate firm JLL, said it still depends on a project-to-project basis if high-rise multifamily developers go forward with new complexes.
"The numbers have to work,” she said. “If it is high-rise steel construction downtown, and rents justify it, they will build it downtown.” Miramontes said it is possible developers might decide to sit on land where they have already gotten approvals to start building.
"I know there is a perception out there that there are a lot of greedy developers,” she said, “but I will tell you that no developer is really hitting it out of the park on returns at this point."
Bosa said it will ultimately be up to market conditions in the coming years if the cranes that have dotted the skyline for several years will continue.
“If the market (renters and buyers) is willing to pay for it, then it’s OK,” he said. “If the market is not willing to pay for it, then everything comes to a halt.”
Article By San Diego Union-Tribune
(619) 469-3600
DISCLAIMER: This blog/article has been curated from an alternate source and is designed for informational purposes to highlight the commercial real estate market. It solely represents the opinion of the specific blogger/author and does not necessarily represent the opinion of Pacific Coast Commercial.
All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner of will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.
Keywords: San Diego Commercial Real Estate For Sale, Commercial Property In San Diego, Commercial Real Estate In San Diego, San Diego Investment Real Estate, Commercial Property Management In San Diego, San Diego Commercial Property Management, Commercial Property Management San Diego, Managed Commercial Property San Diego, Commercial Property For Sale San Diego, San Diego Commercial Real Estate Leasing, Top Real Estate Agents in San Diego, Commercial Property in San Diego, Property Management Company San Diego, Real Estate Agent in San Diego,
|
Comments
Post a Comment