In a year in which San Francisco has shot back to the top of our rankings for most expensive city in the world in which to build, we are seeing acute cost pressures being felt not only in San Francisco but throughout both primary and secondary cities across the United States.

The post-COVID world has refocused many hearts and minds on what people want from their career and life beyond. The labour trends of the ‘great resignation’ and the ‘great retirement’ have affected all sectors of the US economy and this has turned many away from the construction sector.

Against this backdrop, there is a significant pipeline of projects across all asset classes, a need to drive technological innovation, deliver net-zero assets and work towards ever more sustainable construction practices.

Understanding the unique dynamics of real estate in San Francisco, and the parallel cost drivers in the east coast giant New York market, which ranks fourth in our league table, is important to assessing the current opportunities and constraints in these markets.

Understanding the drivers

In San Francisco, construction demand is continuing to be led by increasing requirements for new mixed-use real estate from Google, Apple, Facebook and other tech companies throughout the Bay Area.

Housing demand in this location also remains at an all-time high. This is led partly by projects delayed during the pandemic, but also by the acute shortage in housing stock. The rate of development is especially high on the Peninsula and in San Jose, with Google, for example, delivering residential buildings as part of a corporate drive towards meeting high affordable housing demand.

Over on the east coast, New York is continuing to experience a race to the skies with demand for new supertall towers. In addition, Mayor Adams has promised to ‘supercharge’ economic development, loosening zoning regulations while committing to new apartment building across the five boroughs. A focus on zero carbon is also leading an emerging retrofit market for existing buildings.

A common feature across both cities is the greater competition that they face to retain skilled labour. New York is undoubtedly competing to retain construction talent, with tertiary markets such as Austin and Phoenix, and rural areas in states such as Kentucky and Georgia, where there’s been a surge in new industrial development for battery factories and semiconductor plants. San Francisco still remains highly reliant on imported labour from neighbouring states to satisfy demand.

A shrinking labour pool calls for a razor-sharp focus on new talent

Pressures are being felt in both cities’ labour markets due to an ageing skilled workforce retiring or pursuing options in other fields in a post-COVID world.

Attracting new entrants into skilled labour trades is an increasing challenge. However, the need for new green collar and tech-savvy skillsets can be used to help to attract a new generation of talent.

In San Francisco, buildings are becoming increasingly complex with unique designs, demanding new skills to keep pace – especially with regard to sustainability requirements and renewable energy sources.

For example, Google’s new Bay View campus includes some of the most sustainable all-electric buildings completed to date in the US. PV, geothermal and net water-positive installations, allow with high levels of pre-fabrication make these impressive self-sustaining facilities LEED-NC v4 Platinum as well as the largest to pursue elements of the International Living Future Institute (ILFI) and Living Building Challenge (LBC) Petal Certification.

San Francisco has led the way around designing in sustainable building products like mass timber. While adoption of such cutting-edge sustainable design is comparatively behind in New York, the growing need to create a green collar retrofit industry to refurbish the city’s 20thcentury building stock provides a significant opportunity. With Mayor Adams’ vision to create an additional 61,000 green collar jobs, there is political support which must be leveraged by the construction industry.

Embracing supplier diversity

The Infrastructure Investment and Jobs Act has the potential to pave the way for investment that can power a more inclusive economy. Positively, it has the great potential to shape construction supply chains in both cities. Embracing local talent and suppliers, and attracting disadvantaged suppliers into the value chain, are key to this.

While supplier diversity has long been part of public work, much of the drive for recent supplier diversity is client-driven in the private sector, particularly in San Francisco’s Bay Area. These organisations are not waiting for political pressure to act.

There are approximately 26 different classifications of disadvantage/underrepresentation deployed across the US to diversify the supply chain – the nuance of the metrics varies between east and west coast, but the private sector continues to explore all metrics of underrepresentation.

As more and more suppliers are embraced into the supply chain, legislation may need to change to keep pace on what disadvantage is, as these suppliers grow in scale and success.

The politics of net-zero from coast to coast

Where should leadership for net-zero and the drive to decarbonise lie? On the east coast, net-zero activity in construction is not only a feature of public sector work, but now prevalent with many private sector businesses. The Executive Order on federal building retrofit will continue to fuel the ambitions of the USA in doing its part to achieve the Paris Climate Agreement goals.

In many ways, San Francisco has set new standards around decarbonisation and the drive to achieve net-zero assets and biophilic design. There are multiple examples of private sector and tech companies investing outside of their own assets, for example, redeveloping wetlands and reinvigorating ecology. Google’s Bay View campus development is embracing an ecological programme to restore wildlife in surrounding marshland – recognising that the ecology of the Bay Area is unique and has been badly impacted by development over the years.

San Francisco and New York are two of the top five most expensive cities for construction in the world amid labour shortages, supply chain disruption and net-zero targets. Yet despite these common constraints, these established markets are, in their own different ways, creating resilience by embracing new methodologies for green construction and more diverse and inclusive supply chains.