Report: Rapidly Rising Construction Costs Resulting in Higher Asking Rents Across Southeast

The rising cost of construction is pushing up asking rents across all property types and putting greater strains on custom tenant build-outs, according to the 2019/2020 Southeast Construction Costs Report from CBRE.

Across the nation, construction costs have increased by more than 100% over the last 20 years, a trend that CBRE expects to continue. Markets are struggling to meet the demand for labor while regulations are impacting build cost structures, introducing an element of further unpredictability that impacts pricing. Additionally, tenants are using technology to enhance the workplace, adding significant costs to build-outs relative to just a few years ago.

But, the silver lining for the Southeast region, according to the report, is that despite the historic rise in construction pricing, the Southeast’s relatively favorable cost environment and strong growth and demand trends place it in an envious position relative to higher-cost markets.

Owners and occupiers are adapting to rising costs by deploying capital wisely and balancing the cost of interior construction with the build-out needs of tenants. Tenants are often renewing in-place leases instead of relocating and incurring additional build-out and other expenses. Developers and lenders are practicing caution, only green-lighting high-build-quality projects located in prime locations with leasing pre-commitments in place, according to the report.

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