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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 CostsRampant 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).
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Since 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 CostsSo 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. |
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Lead Time ConsiderationsAnother critical aspect of construction planning involves lead times for essential items, particularly in renovation projects. Here are some current estimates:
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 ProjectionsDespite 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. |
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“We deeply understand the stress that comes with a construction project. Put that pressure on us—it’s what we do best.” Thad is a Design Collaborative boomerang, having first joined the firm in 2018 before returning in 2022. The Chief Cost Estimator role makes a real difference for our clients. We believe that the cost of…