MEP Forecast for 2023
Written By Marina Lucier

It’s hard to believe that 2022 is coming to a close. The construction industry has seen many successes this year, such as improvements in unemployment rates and construction spending. The MEP and construction industry has also faced some challenges, such as ongoing supply chain issues and record inflation following the global pandemic. Labor and materials were two of the most affected areas in construction this year, and while they haven’t completely returned to normal, they have greatly improved. Let's examine stats from the past 24 months so we can predict what to expect in 2023.

Construction Employment
One major area of change this year was in construction employment. While the pandemic impacted employment in the construction industry, the problem has been around for many years. As construction workers begin to retire, there are not enough young people entering the construction industry to balance out that loss. Another cause of the labor shortages is contractors leaving their jobs, and even the industry, in search of better-paying jobs and better opportunities.

While the industry has struggled with skilled labor shortages, overall, there has been an improvement in construction employment. According to stats from JLL’s Construction Outlook, in February 2021, the unemployment rate for the construction industry was 9.6%. By February 2022, this percentage had decreased to 6.7%, showing a significant improvement in the unemployment rate. Additionally, in February 2021, the total employment for the industry was 7.3M; this number increased to 7.6M by February 2022.

This improvement can be attributed to the small yet effective changes construction firms have made in their productivity, technology use, and quality control. Investments made into BIM and construction educational programs is making access to education easier and increasing the number of available skilled laborers. Although the industry is still facing a skilled labor shortage, the difference between 2021 and 2022 is clear: the labor shortage is slowly, but surely improving. We can hope to see this continue to trend upwards in 2023.

Construction Costs
While construction employment has improved to an extent, construction costs aren't doing as well. There has been a significant increase in construction costs across all fronts. “The net effect will be another above-average year of total construction cost growth, forecast to increase 4 to 7 percent over the next 12 months” (Jones Lang LaSalle, 2022). However, this forecast was very off target as data from JLL shows that from February 2021 to February 2022 labor wages have increased 6%; material costs have increased 21.2%, and the total costs from Quarter 4 of 2020 to Quarter 4 of 2021 have increased 11.7%.

There are several reasons why costs increased this year, and will likely continue to increase into 2023. The impact of COVID-19 on the international supply chains has led to inflation on many goods and services. Another reason for higher construction costs is the increasing labor costs as workers demand higher wages. This demand is due to the increased cost of living as well as the lack of skilled workers in the industry. Rising interest rates also play a big factor in increasing construction costs, as these rates make financing construction projects more expensive. We can expect to see costs continue to increase in 2023.

Construction Spending
In terms of construction spending, both nonresidential and residential construction has seen a decline. Nonresidential spending decreased 18.5% from January of 2021 to January 2022, while residential construction spending decreased 13.2%. Although there is still demand for residential buildings, that demand is not nearly as high as it was pre-pandemic.

In 2023 rising interest rates may cause the demand to decrease even more. As for nonresidential construction, while there are talks of future building projects, these projects continue to remain on the back burner due to several factors. One reason these projects haven’t made it past the planning stage is because of the delayed office returns that many companies have experienced as a result of the pandemic. JLL states that “Other indicators such as the Architectural Billings Index suggest demand for new construction work is strong, but cost instability and availability issues will limit total volume.” (Jones Lang LaSalle, 2022).

Although the effects of the pandemic are slowly ending, we will still feel the impacts, as seen with rising interest rates and a decrease in construction spending. The construction industry can expect to still see challenges with the skilled labor shortage although, it has greatly improved since last year. Overall we can expect 2023 to be another year where there is a high demand for construction projects and opportunity for growth.

H1 2022 Construction Outlook. (2022, April 12).

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