While the rest of the nation’s industrial market takes a breather, Phoenix has nearly 41.6 million square feet of active industrial construction projects, accounting for 10.9% of the national total, as revealed by LGE Design Build’s newly released Q2 Construction Delivery Outlook report.

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“In assessing the construction sector’s trajectory, we’re finding encouraging trends in cost management and project schedules, driving efficiency and enhancing overall project outcomes,” said Blake Wells, vice president of preconstruction at LGE Design Build. “Additionally, we have seen greater subcontractor participation and a significant increase in competition that we haven’t experienced for several years, which in turn is helping us keep projects coming in under budget and on time.”

A summary of the report’s other key findings include:

Demand by Product Type

The Valley maintains its lead in terms of the industrial sector’s supply pipeline. When considering under-construction and planned space, The Phoenix industrial construction share makes up 28.7% of the national total. Other notables:

  • Phoenix experienced a slowdown in office construction activity towards the end of last year, yet office investment surged, positioning the city among the top markets in gateway metros. As of November, Phoenix had 1 million square feet of office space under construction across 19 properties, trailing behind other metros like Charlotte, Houston, Nashville and Atlanta. However, investments in the Phoenix area increased notably since the start of the fourth quarter, with $587 million worth of office space changing hands, making it one of the top 20 U.S. metros by active office loan volumes, with over $14.9 billion as of October 2023.

Construction Labor

In January, despite signs of potential softening, the construction industry continued to experience high demand for workers, with many contractors planning to expand their staff in the coming months. Other notables:

  • In February 2024, Arizona’s seasonally adjusted unemployment rate decreased to 4.1% while the national rate rose to 3.9%. Arizona also saw a gain of 16,300 jobs across seven major sectors.

Material Costs

The construction industry is seeing a positive shift towards stability in material pricing in 2024, providing a more predictable environment compared to previous years. Other notables:

  • Despite ongoing challenges in specific product categories, such as drywall, which has experienced consistent price declines, there is diversity in material dynamics. Various commodities like structural steel, framing lumber, copper electric wire and concrete blocks are facing unique challenges and influences.
  • Looking ahead, industry experts anticipate continued stability but stress the importance of resilience and preparedness in project planning, considering potential localized cost increases driven by factors like mega projects, labor shortages and geopolitical events. Adaptability and foresight are crucial for navigating the dynamic landscape of construction material pricing trends.

Supply Chain

Companies are noticing improvements in their supply chains, either because disruptions are decreasing or they’re finding ways to work around previous delays. Other notables:

  • The Federal Reserve Bank of New York saw a decline in supply chain pressures but still cautioned that issues might persist. Contractors are also experiencing some relief, although lead time problems persist in certain materials, as exemplified by Delta Air Lines’ reduced profit outlook due to plane delivery delays.
  • Supply chain disruptions have contributed significantly to inflation by limiting product availability and driving up material prices. The recent easing of these pressures has helped mitigate price increases, although many products haven’t returned to pre-pandemic prices. This positive trend has led to discussions of a “soft landing,” with the Federal Reserve considering halting rate increases and possibly lowering rates in 2024, potentially boosting construction activity.

To view the full Construction Delivery Outlook report, click here. For more, visit LGEDesignBuild.com.