Every quarter, Gordian lends its expertise to a Construction Cost Insights report. Produced in partnership with Building Design+Construction, the report features market observations and analysis from industry heavyweights, based on their experiences and Gordian’s RSMeans Data construction cost database. The industry standard for cost accuracy, RSMeans Data contains over 92,000 unit line items comprised of material, labor and equipment prices localized to 970+ locations. Available digitally and in print, this data is backed by more than 30,000 hours of research every year.
The most recent Construction Cost Insights report was published last month. Here are three noteworthy findings.
1. Construction Material Costs Have Stabilized
Remember the cost volatility of 2020? The wild swings? The pervasive uncertainty about the supply chain? Those have gone the way of social distancing — at least for now.
Construction material price stabilization is the norm as the construction industry starts 2024 on solid footing. Analysis of RSMeans Data shows that building product costs dipped by 3.5% last year, and while some construction commodities will experience price movement this year, said movement won’t be anywhere near as dramatic as it has been in recent memory. The Beck Group forecasts modest cost increases over the next 10 months. Messer Construction Company, which tracks the impact of mega-projects, is also predicting relative cost stability.
Two construction material prices to watch are concrete and copper. Prices for concrete products are at a peak and show no signs of falling due to high demand and a shortage of input products. The copper market, while consistent, is in a curious place. Mine operations have ceased in Peru and Panama due to labor and legal issues. As of this publication, it is unknown how long these pauses will last and the impact they will have on costs.
Get in-depth analysis of long-term material price trends from our construction data experts plus access to every Construction Cost Insights report.
2. The Supply Chain Has Settled, Yet Struggles Persist for Select Items
Construction material costs aren’t the only thing stabilizing. Clark Taylor, Vice President of Estimating at Mortenson, advises that supply chains have generally settled. Clark recommends planning for 3-5% longer than historical averages. Yet, supply chain volatility persists for certain materials.
Matt Verst, Vice President of Cost Planning and Estimating at Messer, cautions that HVAC equipment lead times have reached a stasis exceeding the historical norm. Contractors, engineers, architects and industry executives should still expect wait times to expand past their pre-pandemic standards. Verst warns that lead times will be more volatile for generators, transformers and other electrical equipment. Experts from Mortenson concur, adding to expect strong demand for copper electric wire as well.
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3. Environmental Sustainability Drives Innovation
The leading construction firms are reshaping the industry by committing to eco-friendly practices and using sustainable materials. Where said practices and materials are lacking or do not exist, cutting-edge companies are inventing them. Mortenson is aligning with the U.S. Federal Buy Clean Initiative to lower greenhouse gas emissions by regularly using low embodied carbon building materials. While reducing emissions in existing facilities has long been a focus in the building industry, the relatively recent emphasis on low embodied carbon materials considers emissions released in the production, transportation, installation and disposal of building materials. To reduce embodied carbon emissions, construction firms are turning to alternative materials such as low-carbon bricks made primarily from fly ash, green tiles made from ~50% recycled glass and other minerals, and carbon negative timber, according to CarbonCredits.com, a leading carbon news source. The use of recycled or reclaimed materials also contributes to lowering embodied carbon emissions.
Messer has adopted a corporate focus on energy resilience, thermal energy storage and other ESG initiatives. The Beck Group focuses on sustainability in material procurement and helping clients achieve green building certifications, among other things. These three heavyweights prioritizing eco-friendly materials and operations signal a shift in the construction industry. Sustainability is here to stay.
The Construction Industry’s New Normal
Stable prices. Open supply chains. Eco-friendliness. The Q1 Construction Cost Insights report posits that these three realities are part of the industry’s new normal. After the volatility of the early 2020s, this is welcome news. Yet, industry leaders must remain vigilant, even as the construction world reaches equilibrium. Savvy project planning is at a premium, particularly in light of an expected increase in mega-projects, the continued construction labor shortage, and changing geopolitical events. While the current industry outlook is far more positive than it was even a year ago, this is no time for complacency.
We’ll be back with construction cost analysis in the next quarter of 2024.
