Even as some parts of the economy are supposedly improving, with maybe inflation growth showing signs of slowing in the U.S., the state of commercial construction is painful, according to an analysis from construction consultancy Rider Levett Bucknall.
A graph of their data through mid second quarter of 2022 shows that if anything, the speed of growth for costs, indexed to April 2001, has gotten faster.
“According to the U.S. Department of Commerce, construction-put-in-place during April 2022 was estimated at a seasonally adjusted annual rate of $1,744.8 billion, which is 0.2% above the revised March 2021 estimate of $1,740.6 billion, and 12.3% above the April 2021 estimate of $1,553.5 billion,” the firm wrote.
Costs are stiff. Per square foot construction of warehouses saw a low of $70 in Las Vegas and a high of $255 in San Francisco. Multifamily: from $150, again in Las Vegas, and topping out at $600 in, yes, San Francisco. Retail shopping centers: from $120 to $620 (the high end this time in New York). Primary offices: $200 to $830. Five-star hotels start at $310 and end at $760.
“Our research suggests that between January 1, 2022 and April 1, 2022 the national average increase in construction cost was approximately 2.40% (7.50% annualized),” said the report. “Chicago, Denver, and New York all experienced increases above the quarterly national average during Q2 2022. Locations below the national average included Boston, Honolulu, Las Vegas, Los Angeles, Phoenix, Portland, San Francisco, Seattle, and Washington, D.C.”
What is driving costs now are the same three major factors that have been for a while. workforce shortage is just one piece of a larger confluence of challenges for the industry. One, job openings are at an all-time high, while unemployment is at an all-time low.
“The workforce shortage is pervasive through every aspect of our industry right now,” write the firm. “Recent employment data confirms the shortage of workers in the AEC industries is at a critical point. Construction job openings through the end of April totaled 494,000, which was a 40 percent increase year over year, and this is above and beyond the 455,000 workers that were hired during the month. Recent BLS data shows that 36,000 new employees joined the construction workforce in May, but that was just seven percent of the open positions.”
Then there have been the ongoing supply chain problems. Almost three-quarters of companies that had ongoing projects in the last year felt delays.