Today's Construction Jobs Reflect Yesterday's Rates

The job market is cooling much faster than the data suggests. A significant drop in interest rates, around 1.0%, would take at least 12 months to work through the economy and stimulate job growth. Real estate, heavily influenced by interest rates, is also a major employer of construction jobs.

Real estate development is a lengthy process. The quickest timeline for us to identify a site, secure permits, finalize joint venture agreements, and obtain a construction loan is about six months. Typically, it takes two months to complete due diligence and determine if the land is viable for development. Across all our projects, the average time from LOI to groundbreaking is 18 months, with a few exceptional cases taking up to 30 months.

Decreases in interest rates won’t yield economic results for commercial real estate for quite some time.

Construction job openings are an indicator of a strong construction market. More work means more jobs need to be filled.

Looking back over the last five years…

21 months after the Federal Reserve began raising interest rates, construction job openings hit their peak.

March 2022 was the first month of rate increases and December 2023 had the largest number of construction job openings.

In December 2023, the construction job openings were for development projects planned between 2020 and 2022. A time when real estate was king.

While this is a simplified analogy, it demonstrates how long it takes for interest rate changes to have an impact on the economy. Of course, many other factors are at play.

Applying the same logic in reverse…

The Federal Reserve began lowering interest rates in September 2024. Adding 21 months to September 2024 brings us to June 2026.

Will June 2026 mark the bottom of commercial real estate construction?

Perhaps it will be. But I do know that it hasn't bottomed yet.