Market Headwinds and Material Delays: A Look at Boston's Construction Pipeline
As we ride out an uncertain economic forecast, many factors are putting additional pressure on Boston’s commercial real estate market. While it typically mirrors economic conditions, construction activity has remained remarkably resilient in the years since the onset of the pandemic. Job numbers continue to grow, and firms are reporting a healthy backlog of work – approximately 9 months’ worth, according to a recent Associated Builders and Contractors report.
The Cost of Doing Business
As for pricing, overall construction costs continue to rise, although they’re climbing at a slower rate compared to the increases we saw during COVID. In Boston, one of the most expensive U.S. markets in which to build, costs have increased by an average of 1.9% each quarter since Q3 2022, escalating by 7.8% annually. Local hard costs for Class A office construction are lower than San Francisco and New York but remain well above other major metro areas across the country. On average, Boston is 18% more expensive than Chicago, Seattle, and DC. The industrial market, however, shows great opportunity in the Boston area. Hard cost estimates for industrial warehouse buildings range from $120-205 per square foot, an average of 11% lower than each of the cities mentioned above, including New York and San Francisco.
A Longer Process
Additionally, market experts continue to keep a close eye on the supply chain. Material lead times have remained elevated since the start of the pandemic, with competing demand from other sectors exacerbating delays. To complicate matters further, market and economic uncertainties have put an added focus on real estate decisions, leading to the involvement of more stakeholders and further slowing the process. These challenges are posing a significant problem to delivery timelines for fit-out projects.
For occupiers, planning several years ahead is more important than ever. Assembling the appropriate team and finalizing a program early will help combat challenges that arise later in the process. For a thorough analysis of your real estate and long-term options, reach out to one of Cresa’s advisors.