In recent years, the construction industry has witnessed unprecedented growth in costs. Those of us in the industry are constantly contending with the changes as we outline budgets for new projects. Let’s explore the nuances behind these rising costs in our latest DC Estimating Report.

The State of Construction Costs

Rampant growth in construction costs throughout the past few years have many in shock as we outline individual project budgets. Higher costs are based on multiple factors, but we can be confident that material and labor play a large role in the final cost.

Here are good examples of the escalation in costs for construction material for the past 10 years as well as construction demand from PPI (Producer Price Index).

 

Turner Building Cost Index second quarter 2024Since January 2021, we have seen an exponential increase in construction costs due to the increasing cost of materials and construction demand.

We began to level off from the construction cost peak in the summer of 2023 and are maintaining that plateau throughout 2024.

The Turner Building Cost Index shows a slight decline in the 2nd quarter of 2024, but things are holding steady over the last year.

The Driving Forces Behind Rising Costs

So what’s causing the increase in construction costs?

Lumber and wood products peaked in May 2021 but have since stabilized. Over the past year, prices have returned to more standard levels.

Steel reached its highpoint in February of 2022 and is on a steady decline. While it’s encouraging to see this trend continue, we should be cautious as the costs will never dip down to the normal escalation trend.

Mechanical and electrical equipment skyrocketed in the summer of 2021. We have seen those costs plateau in early 2024, and we’re optimistic about a potential decline.

Lead Time Considerations

Another critical aspect of construction planning involves lead times for essential items, particularly in renovation projects. Here are some current estimates:

  • Doors and frames need around 9 weeks.
  • HVAC equipment (roof-top units) requires approximately 18 weeks.
  • Exhaust fans have a lead time of 7 weeks.
  • Cabinet unit heaters stretch out to about 8 weeks.
  • Electrical panels can be 6-12 weeks.
  • Electrical automatic transfers switches require around 12 months.
  • Utility transformers can take 12 months.

It’s crucial to note that lead times begin after contracts are awarded and shop drawing approvals are obtained. For smaller renovation projects, securing these approvals ahead of the construction start date can help ensure materials arrive on time, meeting completion schedules.

Stabilization and Future Projections

Despite recent tumultuous changes, there is hope construction costs are stabilizing. Attilio Rivetti, Vice President at Turner Construction, offers this insight for the future:

“There is a stabilization of costs for most material prices and lead times have reduced significantly with exception of specific mechanical and electrical equipment. Our proactive workforce development programs continue to address tightness in the skilled labor market, particularly in the mechanical and electrical technical trades that are vital to serving clients in the growing industrial and advanced technology markets.”

Looking ahead, we anticipate a 5.25% escalation rate for 2025 and expect at least a 5% annual escalation for subsequent projects.

Understanding these trends is essential for effective planning and budgeting in your next construction project. If you need a partner to help navigate through it all, consider our cost estimating services to leverage the expertise of Design Collaborative’s Chief Cost Estimator, Thad Berkes.

Copyright ©2024 Design Collaborative