As long as San Antonio can withstand the effects of rising labor and commodity prices and the ever-present burden of local property taxes, the future of its development will be bright, some of area’s foremost real estate experts said Wednesday during the Business Journal first Business Pulse News Event on commercial real estate.
Titled “Opportunities and Challenges in Local Commercial Real Estate for 2018,” the event was highlighted by a panel discussion featuring Chris Carruth, strategic development officer of Metropolitan Contracting Co.; Kevin Covey, managing partner at GrayStreet Partners; Leah Gallagher, San Antonio city leader of Transwestern; and Rahul Patel, managing partner at Patel Gaines LLP.
While panelists generally agreed that San Antonio has a lot going for it, they weighed in on several issues that the city’s development and business sectors may face, including a shortage of construction labor and commodities, as well as the rise and uncertainty of property taxes.
Metropolitan’s Chris Carruth pointed out that Texas added 27,900 new construction jobs last year, but he said the number is hardly enough to keep teams full and projects from being delayed.
“In 2017 in the U.S., we were short 200,000 construction workers. In Texas, our shortage is more acute because of the job growth,” he said.
Factors like an aging work force and fewer young people coming into the industry have been significant factors for this labor shortage. Carruth also said rising commodity prices on things like lumber, steel and cement have had a major impact on project costs and delivery times.
In 2017, lumber prices rose 13 percent and national construction costs rose last year by 3.3 percent, Carruth said. He expects construction costs to rise another 3 percent this year also. On a local level, this will mean fewer subcontractors bidding on jobs.
“Typically, when we put a project out to bid for subcontractors, we like to see bids from four to seven different subcontractors, which creates a competitive market. Currently, we’re receiving one or two bids, sometimes three bids, because these subcontractors are so busy. We just can’t get the coverage,” Carruth said. “This ends up having tremendous impact on schedules. It doesn’t mean we can’t man the sites. We just can’t man the sites as we anticipated we could.”
Covey at GrayStreet Partner has also had to deal with labor and commodity shortages from the development side.
“What has happened is that it’s taken us a lot longer to get each project done. And God bless our tenants, they keep waiting patiently,” Covey said.
Not only did Covey agree with Carruth’s prediction for increasing construction costs, he is also concerned about the availability of fewer subcontractors, specifically those who specialize in “core and shell” projects.
“Not only have we seen a tightening there, but we also value quality construction. And we’ve seen an extreme shortage of that, quite frankly,” Covey said. “Due to all this, we’re adding about 25 percent to our construction timelines everywhere.”