Commercial construction has hit a brick wall. Why?
Commercial construction has hit a brick wall. Why?
We’ve been hearing a lot about troubled commercial real estate loans on bank balance sheets, debts potentially at risk of default by building owners, office vacancy rates being really high, workers still working from home and downtown retail struggling.
Now, there’s evidence this is feeding back up the food chain to the folks who design and build those office towers and other commercial properties.
Manny Rodriguez runs Revolution Workshop, a training program for minority workers to enter the Chicago building trades. So he sees the construction economy from the ground floor up.
“Look at how many cranes are in the sky, right? There’s probably two cranes in the downtown area,” he said. “And it’s a little scary, because that’s a lot of the work.”
Demand for Revolution Workshop’s construction graduates was booming until the middle of last year.
“We really saw a dip in private development. A lot of projects that we thought were going to get kicked off then kind of got to a screeching halt,” Rodriguez said.
At least the market for million-dollar homes is still hot. “High-end residential, obviously that hasn’t slowed. But commercial towers, high-end residential towers, that has all stopped.”
Economist Michael Guckes at industry-tracking firm ConstructConnect is seeing a similar trend nationwide.
”We’re seeing many more projects that are being abandoned, and I think that much of that has to do with the financial markets,” he said.
Interest rates are high and credit is tight. But not all commercial construction is doing poorly, noted Richard Branch at Dodge Construction Network.
“Things like K-through-12 schools, laboratories and life science centers, data centers, manufacturing in there as well, thanks to the Inflation Reduction Act and the CHIPS Act — they’re all doing well,” he said.
But, Branch added, office construction will probably be in the doldrums until interest rates start falling, and — maybe — more folks leave home and go back to work.
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