State of the Industry: 2023 Update

Tuesday, February 28, 2023
By William Duncan, Construction Manager
In Design, Planning, Community

Since 2019, the construction industry has been plagued by drastic material cost volatility, supply shortages, extended lead time issues, and a fleeting labor market. While some things have “improved”, the more accurate term would be “stabilized.” The AGC of America notes, “Overall inflation rates and economic growth have cooled, while congestion at West Coast ports has eased,” (2022 Construction Inflation Alert, AGC). Meaning that some economic concerns have subsided, but ultimately the industry still faces some challenges.

Over the past couple months, we have noticed this stabilization trend in our office through a handful of projects. Throughout the majority of 2021-2022, we had been seeing bids and prices come in nearly 30% higher than 2019 and 2020 averages. However, recently that number has reduced to around 25% and has steadied. We have also noticed that some projects, regardless of size, have a tough time attracting enough bidders. This has been an issue since early 2020, and it is likely to continue. The main reason is that contractors simply don’t have access to the same labor force they used to. The AGC again says, “Compared to February 2020 levels…employment in nonresidential construction was still down 86,000 employees or 1.8%,” (2022 Construction Inflation Alert, AGC). Couple labor shortage with contractors being extremely busy, and you are left with contractors being pretty particular about which projects they decide to bid and which ones they pass up on.

With that information in mind, and based on our recent experience and discussions, we can offer the following information regarding construction costs and lead times:

CONSTRUCTION COSTS:

Concrete: has increased $30 per yard on average. Pricing is still volatile.

Wood/Lumber: prices have come back to “normal” ranges and have stabilized. Approximately 10% higher than what they were two years ago.

Steel: seems to have stabilized but stabilized high. Prices are approximately 25-30% higher than pre-pandemic levels.

Pre-Engineered Metal Buildings: similar situation to steel. These buildings have increased anywhere from 20-50% from pre-pandemic levels, but are not actively increasing.

Labor: labor costs are tricky. While they have typically followed the expected increases that the industry is accustomed to, they may continue to increase 4-5% again this year. Also, as mentioned above, the labor supply is still very tight and getting tighter. The labor market has become very thin, leading to poor coverage on bid day. Many unions are in collective bargaining negotiation this year, and they are trying to grow the labor force through schools and the military.

LEAD TIMES:

Concrete: suppliers have placed customers on allocation due to delivery restrictions. This can make it difficult at times to schedule concrete pours compared to the “at-will” availability we used to know. It is beneficial to plan your pours ahead of time and order concrete early to avoid issues.

Steel: lead times have returned to expected time frames. Can vary anywhere from 4-12 weeks depending on size, shapes, manufacturer, and location.

Pre-Engineered Metal Buildings: lead times have returned to the typical 4-8 month range depending on size and shape. However, some suppliers offer “Fast Track” programs for simple buildings that can reduce this time.

Roofing: lead times have returned to normal. 4-6 weeks for tapered insulation and membranes.

HVAC Equipment: leads times here are still extended in some cases. Most basic items can be delivered within reasonable time frames (4-6 months), but some specialty items are still in the 8+ month range.

Electrical Gear/Equipment: lead times here are still very long. Unfortunately, these have not gotten better, and most gear is pushing 10+ months from approval to delivery. Not uncommon to see lead times over a year.

Glass and Aluminum: a little extended due to some supply issues. What used to be 4-6 weeks has become potentially double.

Water Piping (Ductile Iron): some sizes are still out over a year. Many contractors and projects are switching to the C900 alternative to save this time.

In general, we have noticed that overall construction costs have stabilized approximately 25% above what they were pre-pandemic (2019). This changes when referring to specific costs like wood or steel, but the overall project numbers follow this trend. As for lead times, most items are still extended (though they may improve), which translates to longer project timelines. While lead times may improve, it is unlikely that costs will decrease. It is likely that costs remain where they are for some time and return to the standard 2-5% increase per year. This brings us to the good news: the market has stabilized, pricing uncertainty has subsided, and lead times are more predictable. Additionally, interest rate increases have slowed down, and demand in the construction market is strong. With these factors affecting every project, it is important to be flexible and entertain various options and approaches to overcome some of the obstacles.

At SōL Harris/Day, we are not strangers to these challenges. For the past three years we have been actively working with our clients to come up with creative solutions to overcome them. We have incorporated all kinds of construction and design maneuvers to approach these problems and provide solutions. Whether they be in the form of early packages for bidding, different delivery methods (like design-build or multiple-prime), or value engineering, we keep an open mind with each and every client to ensure that we can still deliver the project they want and that satisfies their needs. By the same token, we keep realistic expectations. We know the industry is not what it was three years ago, and we likely can’t predict three years from now. But our mission remains the same: Designed for People, Designed for Life. And that means we are dedicated to serving our clients and their needs, regardless of what the industry throws at us.

Works Cited: AGC of America, 2022, 2022 Construction Inflation Alert

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