Construction Costs on the Rise

Are you considering a building, renovation or other capital improvement this year or next?  If so, then buckle up.  The cost of construction is on the rise and you need to be prepared.

According to the Mortenson Construction Cost Index,  building owners and construction professionals should anticipate non-residential construction costs to increase 3% to 4% on average this year.  That was based on an early 2016 projection.

Index

Well…we are seeing every bit of that…and more. Turner Construction, one of the largest construction entities in the US, provides their own index/report and they have tracked a 4.8% increase since Q2 2015.

Turner

Further evidence of this is published by the Engineering News-Record (ENR) that reports a 3.4% increase in construction costs.

ENR

One of the major factors, post recession, has been the labor pool.  Many companies during the years from 2008-2010 were cutting staff to stay afloat.  As the market started to come back, most of these firms did not “man-up” for the upcoming increase in demand.

The labor shortage was a huge problem in construction in 2015. While the cost increases predicted likely won’t shelve any projects, the bigger news is that Mortenson is reporting construction employment growth has slowed in most of the metros it followed. A respite from the shortage could do wonders for labor costs for construction projects. This is really good news!

This is not intended to be a doom and gloom post…but here is what you need to be aware of and plan accordingly:

  1. If you plan to build, you need to add an inflation contingency in ADDITION to your normal contingency. You need to safeguard your project from becoming derailed due to sheer inflation.
  2. If you planned a building more than 2-3 months ago, you need to get it repriced.  In fact…if your plans have 12 months age or more, you need to REALLY take a hard look at the cost.
  3. If you are considering a major or even minor capital improvement, be aware of these cost increases and plan accordingly.

Be prepared.  Be intentional.

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