Firm expects strong construction activity in 2019

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South Carolina construction activity is up, according to LCK, a project management partner of Colliers International South Carolina.

LCK, in its third quarter report, said construction starts statewide were .63% higher than starts in the third quarter of 2017. Across the state, 25,305 project starts occurred during 2018, valued at $12.54 billion. In the third quarter, 8,306 construction project starts were recorded.

Looking ahead, the firm projects construction activity to rise “well into 2019 due to an optimistic business climate, increasing population, high demand for industrial structures and public school building programs.”

“Our assertion that construction should remain strong into 2019 is predicated on several factors. Material costs are fluctuating and based on 2018 history, the incremental rise in costs has not significantly slowed construction. We assume that the trend will remain the same into 2019,” Mickey E. Layden, LCK president and CEO, told GSA Business Report.

Layden said the shortage of labor is an ongoing issue, and while it drives costs to some degree, “we see the shortage having a greater impact on construction durations and limitations in the pool of contractors who are interested in competitively bidding for work.” She said projects already in the planning stages or early construction will continue into 2019, positively impacting the overall average of construction dollars spent across the entire year.

The LCK report shows that according to the Bureau of Labor Statistics, as of September 2018, there were 98,400 construction employees in South Carolina, representing 4.66% of total nonfarm employment. Construction employment decreased by 100 jobs over the last 12 months; however, employment in the major markets is largely increasing.

“Project starts in South Carolina are in part driven by the state’s attractive business climate, positive population growth trends and favorable lending conditions,” Layden said. “The healthcare, education and governmental building sectors will need to respond to these growth factors, even if the cost for construction increases. As a result, we anticipate that these market segments will see limited impact.”

Layden said the upward trends in costs will begin to impact and potentially slow the investment real estate and developer driven market sectors in 2019.

“As interest rates creep upward and construction costs and delivery times increase, tenant improvements and build-to-suit projects will slow as rental rates climb and become less competitive to either remaining in existing space or looking at other markets,” she said. “If the trends seen in 2018 continue on the same trajectory throughout 2019, the greater impact may be realized in late 2019 and into 2020. “

Pricing volatility continues for steel, asphalt and gypsum products, with pricing increases averaging 2.9% to 8.2% over the last three months. During the same time, lumber and plywood pricing has decreased by 7.4%, countering sharp increases earlier in the year. Volatility is expected to continue for the foreseeable future, according to the LCK report.

Also, in the LCK third quarter report:

U.S. Construction and Development Lending: According to the FDIC, construction and development loan volume totaled $347 billion as of June 30, up $23 billion since June 30, 2017. The quality of outstanding loans improved with non-current loans representing just 0.48% of total outstanding loans compared to 0.62% as of June 30, 2017.

U.S. Architectural Billings: According to the AIA Architectural Billing Index, architects in the South are the busiest in the nation. The index for the southern region is currently at 57, indicating a strong probability of continued growth in future construction starts. (A score of greater than 50 indicates increased billing activity.)