Through April of this year, the national average increase in construction cost was 4.48%, annualized. Construction put in place during April 2019, at a seasonally adjusted annualized rate of $1.299 trillion, was 1.2% below construction put in place in April 2018.
In its just-released second quarter Construction Cost Report for North America, which is based on data from a dozen U.S. markets ansdn two Canadian markets, the construction management consultant Rider Levett Bucknall reiterates the financial and time impacts that the shortage of qualified trade workers is having on the construction industry’s productivity and expansion.
“Even as technology transforms the jobsite, improving both efficiency and worker safety, skilled-labor recruitment and retention are essential to the future of construction,” writes Julian Anderson, FRICS, Rider Levett Bucknall’s President-North America. “As worker shortage makes projects more costly and slower to build, the risk of undermining broader economic growth increases.”
RLB’s National Construction Cost Index stood at 200.55 in the second quarter of 2019, up from 189.8 in the same quarter a year earlier, and 182.16 in Q2 2017. Keep in mind that these increases are occurring at a time when there has been relatively little inflation in the economy.
The construction backlog in North America was more than nine months in the second quarter. Image: Rider Levett Bucknall, from Associated Builders and Contractors estimates.
RLB's estimates are in line Turner Construction's quarterly Building Cost Index (https://bit.ly/2xWrf61), which the GC giant released on July 16. That Index, at 1149, was up 1.23% over the first quarter, and 5.51% over the second quarter of 2018. “Contractors continue to be selective due to the availability of skilled labor,” wrote Attilio Rivetti, Turner's vice president responsible for compiling its cost index.
To further make its case, RLB cites the Associated Builders and Contractors’ Construction Backlog Indicator, which reflects the amount of work that will be performed by commercial and industrial contractors in the months ahead. The backlog for 2018 averaged 9.15 months, slightly below the 2017 average but still up 17% from 2011.
The report breaks down current building costs by market and by seven typologies: offices, retail, hotels, hospitals, warehouses, parking, and residential. For example, Las Vegas, Phoenix, Portland, Seattle, and Denver continue to be relative bargains for office construction, based on their costs per sf. Los Angeles, Washington DC, and New York are the high-priced spreads when building hospitals. As for hotel construction, Honolulu and San Francisco are priciest.
Overall, Chicago experienced the greatest increase in construction bid costs (including materials, labor, and fees), 8.77%, between April 2018 and April 2019, followed San Francisco (7.05%), Portland (6.82%), Seattle (6.68%), Phoenix (6.47%), and Honolulu (5.83%), all above the national average increase.
Los Angeles, while no slouch on the construction front, was the only metro that RLB tracks that experienced a decrease in construction costs in the second quarter, down 1.22%.
Chicago experienced the highest percentage increase in quarterly construction costs. Image: Rider Levett Bucknall
Through the first quarter of 2019, construction unemployment remained steady at 5.2%. The vast majority of construction firms are still having trouble filling open positions. And this situation could worsen, according to the Associated General Contractors of America, as a result of the Trump Administration’s proposal, announced last month, which would exclude the construction sector from the Labor Department’s apprenticeship framework. (Currently, more than three quarters of the federally administered apprenticeships in the U.S. are either in construction or part of military training, notes RLB.)
In a separate report that gauges construction activity by the number of cranes in use in North America, RLB’s July survey marked the fourth consecutive increase. However, only two of 11 U.S. markets tracked—Los Angeles and Denver—saw an increase in cranes. Five other cities were steady.
Cranes for commercial projects were up nationally and accounted for 41% of the cranes in use in New York City. In all markets, mixed-use and multifamily residential construction accounted for 67% of the cranes counted. In Seattle alone, mixed use and residential required 78% of cranes used.
Related Stories
Market Data | Oct 24, 2018
Architecture firm billings slow but remain positive in September
Billings growth slows but is stable across sectors.
Market Data | Oct 19, 2018
New York’s five-year construction spending boom could be slowing over the next two years
Nonresidential building could still add more than 90 million sf through 2020.
Market Data | Oct 8, 2018
Global construction set to rise to US$12.9 trillion by 2022, driven by Asia Pacific, Africa and the Middle East
The pace of global construction growth is set to improve slightly to 3.7% between 2019 and 2020.
Market Data | Sep 25, 2018
Contractors remain upbeat in Q2, according to ABC’s latest Construction Confidence Index
More than three in four construction firms expect that sales will continue to rise over the next six months, while three in five expect higher profit margins.
Market Data | Sep 24, 2018
Hotel construction pipeline reaches record highs
There are 5,988 projects/1,133,017 rooms currently under construction worldwide.
Market Data | Sep 21, 2018
JLL fit out report portrays a hot but tenant-favorable office market
This year’s analysis draws from 2,800 projects.
Market Data | Sep 21, 2018
Mid-year forecast: No end in sight for growth cycle
The AIA Consensus Construction Forecast is projecting 4.7% growth in nonresidential construction spending in 2018.
Market Data | Sep 19, 2018
August architecture firm billings rebound as building investment spurt continues
Southern region, multifamily residential sector lead growth.
Market Data | Sep 18, 2018
Altus Group report reveals shifts in trade policy, technology, and financing are disrupting global real estate development industry
International trade uncertainty, widespread construction skills shortage creating perfect storm for escalating project costs; property development leaders split on potential impact of emerging technologies.