Construction activity is shifting nationwide as manufacturing and retail companies make efforts to modernize, create more just-in-time shipping locations and link operations digitally.

1. Retail and manufacturing construction
activity is strong as consumers spend
United States
Construction Perspective
Q3 2015

2. Construction activity is shifting nationwide as
manufacturing and retail companies make efforts to
modernize, create more just-in-time shipping locations
and link operations digitally.
Aiming to appeal to millennials and other city
dwellers, many retailers continue to invest in small,
stand-alone stores in city-center locations, focusing on
unique interior construction that creates a distinctive
shopping experience. Retail is also in the midst of an
increase in big-box and grocery locations, yielding
large square-foot buildings in suburban and secondary
markets.
Manufacturing and e-commerce groups are also
cashing in on increased economic activity, building new
locations to more quickly serve consumers and to
integrate their online presence with distribution
facilities. These new industrial spaces include office
space, more technological advances on the interiors
and features like higher ceilings to hold inventory.
While retail and manufacturing construction ramps up,
office starts are flattening slightly. Primary markets are
tightening and costs continue to rise, due to growing
labor rates and a recent jump in glass prices. The
economy is also plateauing, as manufacturers and
investors deal with China’s faltering economy, and this
is likely to affect office starts in 2016.

3. National economic trends

4. -10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
ContributionstopercentchangeinrealGDP(SAAR)
4
Rapid GDP growth is attributed to an upturn in
exports, growth in government spending and
an acceleration in nonresidential fixed
investment.
Source: JLL Research, Bureau of Economic Analysis Most recent available data at time of publication
Strong dollar helped GDP jump 3.9 percent as trade flourished in Q2

5. Consumer confidence and jump in spending means retailers bolster
employment
5
14200
14400
14600
14800
15000
15200
15400
15600
15800
2012 2013 2014 2015
Employment index: retail professions
Retailemploymentindex(hours,employment&earnings)
Source: JLL Research, Bureau of Labor Statistics Most recent available data at time of publication
Retail growth has been especially
strong in city centers, where
construction of small, stand-alone
stores has increased.

6. 0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
100,000
105,000
110,000
115,000
120,000
125,000
2007 2008 2009 2010 2011 2012 2013 2014 2015
Overall Employment Construction Employment
6
Constructionemployment(numberofemployees,‘000s)
Overallemployment(numberofemployeess,‘000s)
Source: JLL Research, Bureau of Labor Statistics Most recent available data at time of publication
Construction employment in growth mode as starts rebound for
spring

7. 20.0
25.0
30.0
35.0
40.0
45.0
50.0
55.0
60.0
Architectural Billings Index (Commercial & Industrial)
7
Source: JLL Research, American Institute of Architects,McGraw-Hill Dodge Most recent available data at time of publication
Architecture Billings Index (ABI) recovered from early 2015 decline

8. 8
This growth was driven by industrial and tech construction in the Midwest and in the West
Source: JLL Research, Associated Builders and Contractors Most recent available data at time of publication
6.8 months
9.8 months
8.9 months
7.3 months
National average
construction backlog
8.5months
Construction Backlog Indicator (CBI) increased slightly in Q2
The CBI indicates the number of work that
will be performed by commercial/industrial
contractors in the next few months, based
on projects in the pipeline currently.

9. Cost trends

10. 0
5000
10000
15000
20000
25000
0
1000
2000
3000
4000
5000
6000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Nat'l BCI
Materials Index
Labor Index
(YTD, Nov.)
10
Source: JLL Research, ENR
Commonlaborindex:Unionwageplusfringebenefits
BCI:20-citylaborandmaterialscostaverageindex
Construction costs grow due to wages, despite plateau in materials
prices

11. 11
Source: JLL Research, ENR
ENR Materials Price Index tracks weight price movement of structural steel, Portland cement and 2x4 lumber.
Weightedpricemovementofsteel,cementandlumber
1500
1700
1900
2100
2300
2500
2700
2900
3100
3300
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Materials index
The steel market has been flooded by low-cost
product, while demand is declining in major
economies like China and the E.U., as they
struggle through an economic and manufacturing
slump. However glass prices are skyrocketing,
which will cause materials prices to jump in 2016.
(YTD, Nov.)
Excess of low-cost supply means lower steel and materials prices

12. 0
5000
10000
15000
20000
25000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Labor Index
12
Source: JLL Research, ENR
Commonlaborindex:Unionwageplusfringebenefits
As demand increases and labor supply stays flat, wages for
highly skilled construction laborers are increasing quickly.
Once more training programs are implemented and
additional workers are brought online, labor costs should
ease – but this will take many years; in the short term, labor
costs will continue to climb.
(YTD, Nov.)
Labor costs are at their highest point in the last decade, fueled by
fewer highly trained construction laborers

13. 0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Carpenters Sheet metal
installers
Concrete
workers
Electricians Equipment
operators
Roofers Cement
masons
Plumbers Flooring
installers
Glaziers
Survey responses: Which craft positions are contractors having the most trouble filling? (Sep. 2015)
13
86
percent of contractors surveyed said they
have difficulty filling hourly craft professional
positions
Source: JLL Research, Associated General Contractors
Wages for craft workers climb as contractors compete to attract top
talent

14. 14
Source: JLL Research, U.S. Census Most recent available data at time of publication
Nonresidentialputinplace($M)
Nonresidential construction put-in-place value up 15.3 percent since
September 2014
$0
$100
$200
$300
$400
$500
$600
$700
$800
2012 2013 2014 2015
Value of nonresidential construction put-in-place (September YoY)

15. 15
Source: JLL Research, U.S. Census Most recent available data at time of publication
Construction Put in Place
sector
Sept. 2014 Sept. 2015
Manufacturing $54.8 billion $87. 8 billion
Education $79.6 billion $87.6 billion
Commercial $58.0 billion $65.8 billion
Office $44.8 billion $57.5 billion
Healthcare $38.2 billion $41.3 billion
Lodging $16.6 billion $22.4 billion
Manufacturing construction put in place value up 57.6 percent YOY

16. 5.6%
5.8%
6.0%
6.2%
6.4%
6.6%
6.8%
7.0%
7.2%
7.4%
7.6%
Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015
E-commerce as percent of total sales
16
Source: JLL Research, U.S. Census Most recent available data at time of publication
As e-commerce becomes more common,
companies will continue to build new
warehouses and update existing industrial
facilities to support customer demand for quick
delivery of a variety of consumer products.
2015 e-commerce sales growth boosted manufacturing construction

17. 0
5000
10000
15000
20000
25000
New York Boston San
Francisco
Chicago Washington,
DC
Los Angeles Seattle Portland Denver Phoenix
Q3 2014 Q3 2015
17
Cost of construction in major markets (Q3 2015)
Source: JLL Research, RLB
RLB Comparative Cost Index
tracks the bid cost of
construction, including labor,
materials, contractor and
overhead costs.
RLBComparativeCostindex
San Francisco leads office construction cost growth with 6.0 percent
increase YOY

18. 18
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
New York San
Francisco
Silicon Valley Washington,
DC
Los Angeles Miami Seattle Boston Austin Fairfield
County
Many markets with high construction costs in the Midwest
and Southwest, such as Chicago and Denver, do not rank
in the highest rental markets per square foot.
Rentcostsp.s.f.
Source: JLL Research, U.S. Census Most recent available data at time of publication
Highest-cost office construction markets on the coasts also have
highest rents

19. 19
$0
$200
$400
$600
$800
$1,000
$1,200
NYC Washington,
DC
San Francisco Boston Los Angeles Seattle Chicago Portland Atlanta Dallas
$ per s.f. Replacement Cost
Averagecostpersquarefoot
Source: JLL Research
Office replacement costs well above sales pricing in high-cost
markets like NYC and San Francisco

20. 20
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
Chicago Denver San
Francisco
Seattle Portland Washington,
DC
Los Angeles Phoenix Boston New York
Q2 2014 Q2 2015
Change in construction cost YOY
Source: JLL Research, RLB
Many markets saw rate growth, but Boston, NYC and Portland are
declining

21. 0
5000
10000
15000
20000
25000
30000
35000
40000
ENR labor cost index by city (Q2 2015)
21
Commonlaborindex:Unionwageplusfringebenefits
Source: JLL Research, U.S. Census Most recent available data at time of publication
Costs remain low in Southern states, but higher in states with a large
union presence

22. Construction activity

23. Q3 2015 office starts declined slightly YOY as costs increased &
markets tightened
23
Source: JLL Research, CoStar Most recent available data at time of publication
10.0 m.s.f. 15.0 m.s.f. 14.3 m.s.f.
Q3 2012
7.8 m.s.f.
Q3 2013 Q3 2014 Q3 2015

24. 0
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
140,000,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Completions(s.f.)
Average completions
46.0 m.s.f.
24
Source: JLL Research Most recent available data at time of publication
Historical construction completions (Q3 2015)
Office construction approaches historical annual average as starts
are delivered to markets

25. Retail construction is down YOY as many 2014 starts were
delivered in early 2015
25
Source: JLL Research, CoStar Group Most recent available data at time of publication
Industrial construction
Retail construction
142.5
m.s.f. under
construction
Q3 2015
Q3 2014 Q3 2015
168.7
m.s.f. under
construction
63.5
m.s.f. under
construction
51.9
m.s.f. under
construction
Q3 2014
Q3 2015
Office construction
Q3 2014
92.8
m.s.f under
construction
71.2
m.s.f under
construction

26. 26
Source: JLL Research Most recent available data at time of publication
Completions(squarefeet)
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Q1
2015
Q2
2015
Q3
2015
YTD office completions
Q3 office completions are up YoY, as starts come to market

27. 27
Source: JLL Research
7.7
m.s.f.
Dallas
5.7
m.s.f.
Seattle
3.1
m.s.f.
San
Francisco
4.4
m.s.f.
Silicon
Valley
10.8
m.s.f.
Houston
3.0
m.s.f.
Chicago
2.9
m.s.f.
Austin
14.6
m.s.f.
New
York City
6.1
m.s.f.
Washington,
DC
3.3
m.s.f.
Philadelphia
Q3 2015 under construction
The top 10 office construction markets are clustered in tech and
energy markets in the South, Northeast and Northwest

28. 28
IndustrialCompletions(squarefeet)
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
90,000,000
2010 2011 2012 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015
Source: JLL Research Most recent available data at time of publication
Industrial deliveries climbing QOQ. We can expect more deliveries
in 2016

29. 21.4
m.s.f.
Inland
Empire
6.0
m.s.f.
Reno
Industrial square feet under construction grew in Midwest and
eastern hubs, like Chicago and Philadelphia
29
Source: JLL Research
14.7
m.s.f.
Dallas
4.1
m.s.f.
Los
Angeles
3.8
m.s.f.
St. Louis
9.7
m.s.f.
Houston
14.3
m.s.f.
Chicago
5.1
m.s.f.
Kansas
City
17.1
m.s.f.
Atlanta
18.6
m.s.f.
Philadelphia
Q3 2015 under construction

30. -2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Pittsburgh Boston Phoenix Cleveland Reno /
Sparks
Charlotte Jacksonville Baltimore Sacramento Memphis
YTD
total net
absorption
(% of stock)
Total
vacancy
(%)
30
The lowest vacancy rates are in Los Angeles,
with 2.5 percent total vacancy in Q3.
Source: JLL Research Most recent available data at time of publication
Industrial vacancies high nationwide with low net absorption in
Rust Belt cities

31. 0
5
10
15
20
25
100-249
k.s.f.
250-499
k.s.f.
500-749
k.s.f.
750-999
k.s.f.
>1
m.s.f.
100-249
k.s.f.
250-499
k.s.f.
500-749
k.s.f.
750-999
k.s.f.
>1
m.s.f.
Dallas / Fort Worth Chicago
# of available warehouse spaces (in U.C. facilities) # of warehouse demand requirements
31
Source: JLL Research Q2,Most recent available data at time of publication
Construction starts will rise with high industrial demand
requirements and lack of available space

32. 32
Source: JLL Research, CoStar Most recent available data at time of publication
Annualcompletions(squarefeet)
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
20,000,000
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015
Total RSF Delivered
Retail deliveries are up QOQ, but lagging YOY, as CBD retailers
focus on smaller square-foot storefronts

33. 33
Source: JLL Research
2.6
m.s.f.
Houston
1.9
m.s.f.
Los
Angeles
2.5
m.s.f.
Dalllas
1.9
m.s.f.
Chicago 1.9
m.s.f.
Philadelphia
2.1
m.s.f.
Long
Island
3.7
m.s.f.
Northern
N.J.
2.4
m.s.f.
New York
City
2.7
m.s.f.
Boston
Q3 2015 under construction
1.7
m.s.f.
Miami
All major retail markets saw QOQ growth in square footage under
construction in Q3, though it is down slightly YOY

34. 34
Source: JLL Research, CoStar Most recent available data at time of publication
Retail construction varies noticeably by subtype, with the vast
majority of activity in general retail and shopping centers
8.5
2.2
3.1
2.2
1.2
0.7
5.4
1.8
0.0
1.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
Primary market Secondary market
Inmillionsquarefeet
Specialty Center Shopping Center Power centers
Malls General Retail

35. 4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
Retail vacancy rates
35
Source: JLL Research, CoStar Q2,Most recent available data at time of publication
Percentvacant
-1.0 percent
since Q1 2014
Retail vacancies are starting to decline QOQ as retail rebounds

36. Overview and outlook

37. Key construction markets
37
Source: JLL Research
Houston continues to lead the pack, rebounding from a 12.0 percent activity decline in Q2 to over 15.6 million
square feet in office construction activity in Q3. The next most active office market, New York City, had 5.4 million
square feet of activity.
Retail construction is growing rapidly, especially in markets like Northern New Jersey, which are building large
retail ecommerce centers. The average retail building in Northern New Jersey is 0.01 million square feet currently-
the average building under construction in that market is closer to 0.06 million square feet.
Industrial square footage under construction has grown in key markets, led by development in Inland Empire.
Currently, 69.0 million square feet of industrial space is under construction in just four markets.
New York City remains the most expensive market, driven by high labor costs and land supply constraints, but
rates of growth in NYC are declining.
Portland, though a high cost market, has seen the largest decline in the cost growth rate, indicating that
costs will flatten in the future.
1.
2.
3.
4.
5.

38. What’s next for construction?
38
Source: JLL Research, IBISWorld
Politics as un-usual: The 2016 election is ramping up and will affect consumer behavior as domestic residents
weigh who they think will become the next leader. Further, the upcoming fight over the debt ceiling could delay
government buildings and other public works if the government delays its budget.
The Fed is looking to raise interest rates, which will make it harder for contractors to get funding for big
projects and will slow consumer spending.
China’s economy has slowed, and contractors are uncertain how this may affect the markets. Most noticeably,
many inputs, such as low-cost steel, are manufactured in bulk in China. As its manufacturing sector continues to
decline, materials prices will continue to drop into 2016.
Wages will remain the key cost driver for construction, as materials prices remain relatively low in the short
term- thanks to the slowdown in China’s economy and the continued drop in energy prices. However, there is a
shortage of skilled labor for construction jobs, and wages are rising as a result.
Retail and manufacturing should see continued growth, as purchasing power in the United States grows and
retailers compete to become more integrated. As the “Amazon model” continues to take hold across the country,
increased demand for just-in-time manufacturing and packaging space near major population hubs will manifest
in more square feet delivered to the market.
1.
2.
3.
4.
5.

39. COPYRIGHT © JONES LANG LASALLE IP, INC. 2015
Thank you
Dana Westgren
Research Analyst
Project and Development Services
+1 (312)-228-2867
Dana.Westgren@am.jll.com
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