2021 Construction Materials Shortages


Will McIntosh, Ph.D
Global Head of Research

Karen Martinus
Senior Associate, Research

Mark Fitzgerald, CFA, CAIA
Executive Director, Research

June 2021

Executive Summary

The pandemic has accelerated tenant requirements for modern industrial and logistics real estate. In response to this extraordinary demand, construction activity has proliferated. At the same time, the pandemic has exposed significant challenges for supply chains globally, disrupting the flow of raw materials and finished goods. Research shows that ongoing disruption is driving a global shortage of raw building materials, resulting in increased input prices and extended lead times. There are growing concerns that materials shortages could put the brakes on construction activity, leading to real rent growth and a scarcity of supply in 2022. This paper addresses these themes, and finds that:

  • Overall prices of construction materials are rising; however, headline data understates the severity of cost inflation, with some individual materials rising much more sharply.
  • Longer delivery times can be traced back to disruptions in global transportation; notably, a shortage of shipping capacity.
  • Increased materials pricing and required lead times are causing some property developments to be paused or delayed. Assuming demand remains robust, we could see historically low vacancy rates in 2022 as new supply will simply not be available.
  • With continued strong demand and increased materials costs, industrial and logistics rents will likely continue to move up to align with the increased cost of development. This bodes well for the fundamentals of existing properties as well; increasing replacement costs may be a “rising tide lifting all boats” in the near-term.
  • Elevated pricing and delays are possible throughout 2021 and potentially further into 2022 based on demand forecasts.