March 18, 2019
New research by Cushman & Wakefield’s Project Development Services & Research show that tenant improvement construction costs have risen 35% in Portland since 2009. Researchers found that zoning requirements for development projects in the city are significantly impacting construction.
Cushman & Wakefield says all multifamily projects must comply with the city’s Inclusionary Zoning and remain within the Urban Growth Boundary, which requires developments over 20 units to reserve 20% of the units for households making less than 80% of the median family income. Since the new zoning went into effect, permits for multifamily construction have fallen 460%.
Meanwhile, the commercial sector is booming with 900,000 square feet of office construction underway, and another 2.3 million square feet of industrial under development. That’s putting contractors in a bind, since they lack the capacity to accommodate new projects. New bids are being resubmitted at “elevated costs” notes Cushman & Wakefield, which is causing developers and tenants to reevaluate plans.
Materials costs are rising, in part due to demand, as well as tariffs. But the lack of skilled labor is also causing construction costs to rise, since workers that left the trade during the recession of 2008 and 2009 have not been replaced.
Landlords are increasing TI allowances, but still corporate tenants are faced with higher capital expenditure costs to complete the work.
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