RealEstateNews 12.9.24

Weekly News Roundup

• Modular Housing Gaining Ground
• Reshoring Reshaping Real Estate
• Construction Industry’s Deportation and Tariff Troubles

Modular Housing Gaining Ground

Modular housing development has long been a fringe part of the U.S. market, primarily limited to lower-budget or emergency housing. Now, the country’s largest apartment operator is trying to change that. Greystar Real Estate Partners on Monday is opening a six-building modular apartment complex, complete with a gym, amphitheater and bocce courts. It is Greystar’s first U.S. project assembled using this alternative construction method, aiming to combat the chronic delays of traditional developments. 

Ltd. Findlay is the first property developed at Greystar’s modular factory in Knox, Pa. The developer has six more modular projects in its U.S. pipeline that will also be built at the Knox site. Unlike conventional on-site construction, modular homes are assembled in a factory, transported to the final building site and then stacked on top of each other like jumbo Lego blocks. Proponents say this type of building can be completed faster using fewer workers and with materials that can be purchased at a bulk discount, which can reduce overall costs. 

Even so, modular remains only a small portion of the overall construction market, reflecting a number of challenges from the cost of transporting pieces to difficulties with financing and regulatory approval. But its use is steadily growing. With the construction workforce shrinking and costs rising, the efficiency gains of modular are gaining traction with mainstream developers. From 2015 to 2023, the annual market share of modular construction more than tripled to 6.6%, according to the Modular Building Institute, one of the industry’s trade groups.

With the cost of materials and labor rising, “modular emerges as a more viable alternative to traditional construction methods,” said Jose Luis Blanco, a senior partner at McKinsey who leads the global engineering, construction and building-materials practice. Source: Wall Street Journal

Reshoring Reshaping Real Estate

The return of high-tech manufacturing to the United States is having a positive impact on demand for commercial real estate (CRE) in the markets where these facilities are being established, blunting and, in some cases, reversing bleak supply/demand dynamics. Significant trade policy shifts and landmark legislation are incentivizing the rebuilding of U.S. manufacturing capabilities across multiple sectors—notably semiconductors, clean energy, batteries and electric vehicles. These industries are reshaping neighborhoods and cities and could ultimately have a significant impact on the CRE industry.

According to a report by NAIOP and Newmark Research, since 2020, North America has witnessed over 300 manufacturing facility announcements, representing nearly $400 billion in pledged project investments and 250 million square feet of new development over the next decade. Furthermore, these new projects are expected to create at least 210,000 new jobs. Additionally, the onshoring trend is heightening demand for industrial and multifamily real estate while spurring job growth in emerging manufacturing hubs across numerous Sun Belt markets, including Phoenix and Austin.

For example, look at the Phoenix market, where Intel and TSMC have announced plans for a combined investment of $85 billion into new, state-of-the-art chip factories. The construction of these facilities is drawing a network of suppliers and ancillary businesses into the area, driving the need for diverse CRE development from office spaces to light industrial properties to single-family rental housing. This “clustering effect” fosters tech-oriented CRE development and can lead to new construction of manufacturing and industrial facilities in the surrounding area. This surge in industrial operations will require additional energy and infrastructure investments, further integrating Phoenix with other major industrial markets on the West Coast. Source: Forbes

Construction Industry’s Deportation and Tariff Troubles

The construction industry is particularly vulnerable to President-elect Donald Trump’s vow to deport millions of undocumented immigrants, and his threats to introduce new tariffs on Mexico and Canada.  In Texas, California, New Jersey and the District of Columbia, immigrants make up more than half of construction trade workers, according to Riordan Frost, a senior research analyst at the Harvard Joint Center for Housing Studies. Undocumented workers make up an estimated 13% of the construction industry—more than twice that of the overall workforce, according to a recent estimate from Pew Research Center.  

Construction companies have struggled with major worker shortages since the 2008-09 financial crisis, which left the industry reeling with steep job losses. Many U.S.-born workers pivoted to opportunities that were higher-paying, less physically demanding or both. On top of that, the president-elect’s proposed tariffs of 25% on Canada and Mexico could increase the cost of construction materials. Since 2022, some 130,000 newly arrived immigrants have joined the construction industry, pushing the number of foreign-born construction workers to a record, according to the NAHB. Even with the surge in migration, roughly half of builders reported shortages earlier this year for directly employed workers and for subcontractors, according to the association’s survey of electricians, roofers, plumbers, painters and businesses in several other trades.

Overall, about 7.3% of home-building materials are imported, according to the National Association of Home Builders. Softwood lumber, used to frame buildings, often comes from Canada, which now has a tariff of 14.54%. The U.S. is also the world’s top importer of the crucial housing materials iron and steel. About a quarter of America’s $43 billion in imported iron and steel came from Canada as of 2022, according to the Observatory of Economic Complexity. Another key home-builder import from both Mexico and Canada is cement. The U.S. imported $512 million of cement from Canada and $254 million from Mexico in 2022. Gypsum, which is used to make drywall, is also imported from both countries and has already jumped nearly 50% in price since 2020, NAHB said. Source: Wall Street Journal