2019 Construction Forecast: Insight for Commercial Brokers

The Greater Seattle Area construction sector had a great year in 2018, which fed a hot real estate market, both commercial and residential. As 2019 begins, we take a look at how upcoming trends, technology, and economic factors may impact the commercial construction space. These factors will influence the relationship among commercial real estate brokers, general contractors, and tenants.

SMALLER CONSTRUCTION FIRMS WILL EXPERIENCE LESS BACKLOGGED PROJECTS THAN LARGER COMPETITORS 

In December of 2018, Associated Builders and Contractors reported that Q3 saw a decrease in backlogged work from Q2. Although this provides an optimistic outlook that projects may start to be completed quicker in the future, the backlog numbers on the West Coast remain 2.7 months higher than this time last year.

Although backlog numbers remain high across construction companies of all sizes, small to medium sized construction companies have experienced the greatest decline in backlogs. This means they can offer a quicker turnaround on projects.

Broker Takeaway: Working with a small to midsize construction company could provide a quicker turnaround for tenant improvement projects.

TECHNOLOGY BECOMES A KEY PLAYER IN THE CONSTRUCTION SPACE

From blockchain and cloud based construction software to robotics and anonymous machinery, construction technology is on the rise. So what does this mean for commercial brokers who are leasing spaces in need of tenant improvements? In 2019 we will see more detailed collaboration and communication among architects, contractors, and clients, as well as streamlined payment plans, and quicker project turnaround.

Companies who experience shortfall in human capital may begin to fill gaps with technology, creating a more competitive marketplace.  

Broker Takeaway: Your contractor referral sources may be upping their game by using new technology, allowing them to better serve you and your clients. Ask potential contractor partners what they can offer you, in terms of turnaround on bids and what they can offer your client when it comes to project turnaround time.

commercial brokers retail spaces

VACANCY RATES EXPECTED TO RISE AS THE ECONOMY SLOWS DOWN

According to Dodge Data and Analytics, as the economy slows down, vacancy rates may be on the rise. These changes may slightly dampen momentum on new construction projects.

This is good news for tenants seeking commercial space, as more rental options may open up. Additionally, commercial brokers will have a wider selection of inventory to meet their client’s needs.

Broker Takeaway: As new construction slows you will be showing your clients existing spaces for lease that may require tenant improvements. Partner with a commercial contractor from the beginning to help illustrate the end result of the project for your client and ensure a speedy turnaround on a construction quote, to get the lease signed quickly.

THE RETAIL SPACE IS TRANSFORMING AND IMPACTING COMMERCIAL LEASES

Historically commercial leases are longer, ranging from 5-10 years. This is changing. As brick and mortar retail stores are seeking flexibility, we are beginning to see shorter lease lengths, even “pop-up” leases.

Broker Takeaway: While some clients may still be seeking a location with longevity, it’s now more important than ever to discuss the future of your client’s business in their space. It’s advantageous for you (and for your client) to get the opinion of an architect and general contractor during this conversation, to ensure the client’s needs can be met within a scope and budget that matches the lease length.

commercial brokers sustainable construction

A FOCUS ON SUSTAINABLE CONSTRUCTION

As climate change continues to be a hot topic of conversation, sustainability is top of mind in all aspects of business. This includes construction. From emissions to waste disposal, the environmental impact of construction projects are now influencing business owners and investors decisions.

Broker Takeaway: Have a commercial contractor on the docket who practices green building methods. This way, when you encounter a client who prioritizes sustainability, you are able to provide a quick referral.

This is by no means an exhaustive list of trends to expect in 2019. However, the factors listed above are definitely at play in today’s construction and real estate marketplaces. It’s important to be ready for their impact on your clientele and the real estate market. As a real estate broker it is advantageous to have a commercial general contractor who you work with regularly, who can keep you abreast of industry trends and their impact your clients.