As its name suggests, the New Year is generally a time of optimism. We start with a clean slate (mostly) and yet-unblemished goals and plans. Reality arrives when circumstances intervene and the unexpected happens.
Predicting those circumstances is hard, especially in the real estate business. But there are almost always some indicators of what’s to come. And being on the right side of those facts and figures tends to precipitate success. Here are five that are likely to impact development in the year to come.
1. Interest Rates
There was more good news in the December jobs report, with unemployment dropping to 4.1% and 256,000 net job gains. But that may prompt a delay in interest rate cuts from the Fed. Here’s how economist Jason Schenker put it in a recent Forbes post:
“Before the jobs report was released, the odds were already low for an interest rate cut in the next Federal Reserve decision on January 29. However, the strong December jobs report is the nail in the coffin for January rate cut expectations. With solid labor market data and near-term risks of an acceleration in year-on-year consumer inflation rates, the next Fed rate cut may not happen until May 2025.”
That may discourage or delay some new development, but the overall environment remains conducive and hopefully continues to be so.
2. Steel Prices
Tariffs have been a hot topic in political circles lately, which has made them oft discussed in the development world as well. That’s because development depends on steel, and a fair amount of the steel development depends on is imported.
According to World’s Top Exports, 44.3 percent of America’s structural steel is imported from Canada (16.6 percent), China (14.3 percent), and Mexico (13.4 percent). All three of those U.S. trading partners have been mentioned as tariff targets by the incoming administration. Whether those tariffs come to pass is TBD, but they will be important to monitor as development budgets are considered (and perhaps reconsidered).
3. Labor Force Growth
After a decades-long decline, potential labor force growth has actually trended ever-so-slightly upward since 2011. According to a recent piece from the Kenan Institute of Private Enterprise, the number of people available to work in the U.S. has increased roughly 0.9% per year in that time and is expected to increase to 1% in 2025. The 2.3 million jobs that were created in the past year helped GDP grow by 2.7%. Will that continue? Based on the report’s findings, it will likely depend largely on the impact of new immigration policy.
4. Skilled Trades Hiring
The construction industry continues to face a hiring crunch for skilled workers. While demand (like wages) remains high, too few young people are replacing the trades’ most experienced workers. This report from McKinsey & Company states that for roles like carpenters, electricians, welders, and plumbers, “annual hiring is expected to be more than 20 times the projected annual increase in net new jobs. This extraordinary rate of churn could cost companies more than $5.3 billion every year in talent acquisition and training costs alone. The additional lost productivity as new talent is brought up to speed could amount to significantly more.”
The report also suggests that while high turnover is a serious challenge for construction industry leaders, it’s also an opportunity. Those who can attract the next generation of skilled tradespeople while finding ways to inspire greater productivity are the ones who’ll prosper.
5. Recessionary Odds
The nation’s top economists believe the U.S. economy has some momentum heading into the new year. According to Bankrate’s Q4 Economic Indicator Survey, the economy grew even faster than originally reported in the third quarter of 2024 and looks to have expanded again in the fourth. That led the surveyed economists to set the odds of a recession by the end of 2025 at just 26 percent.
There were some downside risks noted in the survey’s responses, though. They echoed the Federal Reserve’s inflation forecasts and expressed concerns about the impact universal tariffs on imports and a reduction in immigration could have on prices.
Despite the challenges that inevitably arise, these and the other data points mentioned here suggest overall momentum and cautious optimism for the year to come. Vigilance is always advised, of course, but we tend to agree. And so do many of our clients, who are moving forward with major projects or pursuing them in earnest.
If now’s the time to start your legacy project, contact McCullers Group for the experience and insight it takes to make it a success. We’ll help you plan, fund, design, build, or optimize your facility for maximum impact – this year and beyond.
