October 29, 2018

As construction costs spike, office development activity plateaus 

Recent spikes in key commodity prices for commercial real estate construction have exacerbated cost pressures on developers and project management teams. Rising oil prices have driven up asphalt and diesel prices, and recently imposed tariffs have contributed to price increases for commodities like iron, steel and lumber. 

Office construction completions have decreased in the U.S. during each of the past three cycles, due in part to an increasingly mobile workforce and an increased focus on highly efficient floorplans. Rising construction costs this cycle also have limited development activity to submarkets where rent growth has been strong enough to justify it.

Office completions are expected to peak at 64.8 million sq. ft. in 2018, below the previous cyclical highs of 76.5 million sq. ft. in 2008 and 110.3 million sq. ft. in 2001.

Download the U.S. Construction Costs & Office Development Trends report for more insights, including market-by-market data and analysis. 

NOTE: This report is an update to charts and trends examined in CBRE Research’s 2016 three-part Viewpoint series on why construction costs are rising and the impact on office development.