Publications

- February 1, 2019: Vol. 13, Number 2

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Pipelines dampened by rising construction costs

by Marek Handzel and Andrea Zander

Labour costs in the global construction sector are rising at their fastest pace in 10 years, dampening pipelines and increasing the possibility of strong rental growth in most real estate sectors.

In its Trends for 2019 research paper, PGIM Real Estate has underlined financial pressures in the building industry as one of the major influences on market conditions and investment performance for the coming year. It has said that wages in the construction labour market are now rising at an annual rate of 5.6 percent, and are leading to serious questions about the possible level of new development over the medium-term.

Wage inflation pressure comes at a time when demand for new space is expanding, particularly in popular logistics hubs and CBD office markets, such as Munich and Paris. PGIM says that new properties should be built over the next five years at the fastest pace since 2010. However, constraints faced by the building industry suggest that supply growth m

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