State of the Industry: 2023 Update
Tuesday, February 28, 2023
Friday, January 10, 2025
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In Planning, Community
Ring in the New Year! Pop the confetti and crack open the champagne, it’s time to turn the page on 2024 and look forward to 2025. While the new year is always cause for celebration, it also brings about questions and uncertainty on what the upcoming year might hold. With our State of the Industry update we aim to answer some of those questions and shed light on what’s going on around the industry, specifically focusing on construction demand, cost, and workforce. Our last update in 2023 focused on the post-pandemic market. Though it may have been almost 5 years ago, the pandemic did leave some lasting impressions on the industry. With this rendition of the market update we are going to give you a crash course on what trends we are seeing in the market today, and how some of the statistics stack up since our last update.
To start, the construction industry has seen some positive developments over the last few years, and even months. Overall, non-residential construction spending increased 6% from 2023 to 2024, and most industry professionals expect that trend to continue. Much of the increased spending came from data centers (up 69%), but most other sectors contributed as well (manufacturing up 20%, education up 7%, healthcare up 3%.) However, the commercial (warehouse/retail) and office sectors saw a steep downturn (down 13% and 18% respectively). (Simonson, US Construction Outlook: Torrid or Tepid?) Though not to fret, as the main reasons for the downturn were high interest rates and election-related uncertainty – always common in election years – both of which have subsided through the last few months of 2024. And while inflation has been sticking around longer than expected, actual bid prices in May 2024 were 1% lower than that of May 2023. An encouraging sign as it shows that even though some input costs may still be increasing, we are getting strong competition and positive results on bid day.
In our previous update we looked at some of the major construction material cost trends and lead times, most of which were focused on pre- vs. post-pandemic levels. Let’s look at how things have changed since then.
CONSTRUCTION COSTS (2023 - 2024):
Concrete: up 4%, with normal expected increases. (Compared to the 30% increase from 2020-2023)
Wood/Lumber: up 5.9%, though this pricing tends to change at random. Some quarters it’s up, some quarters it’s down. Overall, these products seem to follow the standard industry increases that are commensurate with inflation (2.5-5% per year). (Compared to the 23% increase from 2020-2023)
Steel: down a sizable amount over the year (over 10% on average) but suppliers have reverted to the industry standard quarterly or yearly increases. This is exemplified by the cost coming down +/- 10% over the year but increasing by about 2% during the last quarter of 2024 (the 10% decrease is compared to the 35% increase from 2020-2023). Sorry, I know that was confusing.
Pre-Engineered Metal Buildings: down 1% from 2023 (compared to 50%+ increase from 2020-2023). Pre-engineered buildings are still great cost-effective solutions to overcome budget constraints, and their pricing is fairly stable.
Glass and Aluminum: up 5% (compared to the 25% increase from 2020-2023). Back to standard increases of one or two percentage points each 3-6 months.
Labor: following typical 4-5% increases per year, relatively stable, yet many contractors note this as one of their biggest concerns heading into 2025.
LEAD TIMES:
Concrete: minimal issues, if any. However, it is still beneficial to plan your pours ahead of time and order concrete early to avoid any potential problems.
Steel: minimal issues, lead times are within expected time frames. It can vary anywhere from 4-12 weeks depending on sizes, shapes, manufacturer, and location.
Pre-Engineered Metal Buildings: these lead times really vary from manufacturer to manufacturer. Some are in the 2–4-month range, while others can be 4-6 months. The main factors to consider are the size and shape of the building. In general, very few issues with these lead times.
Roofing: normal, no issues. A couple of weeks for standard materials, potentially 4-6 weeks (or less) for tapered insulation and specialty materials.
HVAC Equipment: minimal issues. Standard equipment is pretty readily available at standard lead times (4+ weeks). Specialty equipment can push out to 12+ weeks.
Electrical Gear/Equipment: this is one area where improvement has been slow to catch up. Lead times here are still very long, with some gear in the 40+ week range. If you are fortunate enough to have a project where the gear is standard with no frills, you can typically get it in 8-12 weeks. But it’s not uncommon to still see extended lead times on most electrical equipment.
Glass and Aluminum: minimal issues, typically 4-6 weeks or less. Specialty items can be a wildcard though and should be approached on a case-by-case basis.
Water Piping (Ductile Iron): minimal issues, standard lead times on standard sizes.
Aside from material costs and lead times, the other important topic to discuss as we head into 2025 is labor. According to a survey, “…the three most common concerns noted by construction firms are all workforce related.” (AGC, Sage, A Year in the Balance) First being direct labor costs, second the insufficient supply of workers, and third was worker quality. As many construction workers are reaching retirement age, they are simply not being replaced at the same rate, leaving the industry with fewer and fewer experienced tradesmen. And while wages are attempting to increase to cope with inflation, it leaves big question marks about what labor rates are going to do in the coming months. Nonetheless, while these statistics might paint a dire picture when it comes to the workforce, the reality is much more positive. The AGC notes that “more than two-thirds of the respondents expect to add to their headcount,” (AGC, Sage, A Year in the Balance) in order to keep up with the potential (and likely) rise in construction demand. Thus, while labor cost and supply may be a thorn in contractors’ sides for the foreseeable future, many of them still anticipate construction demand to stay strong, and they plan to be able to meet the demand.
So what does all this mean, and where does it leave us heading into 2025? Let’s just say…busy. With the election in the rearview and the new administration taking office later this month, many of those concerns have subsided. And as interest rates are stabilizing (or even coming down), owners are more inclined to move forward with projects that may have previously been put on hold. While every year has the potential to bring new challenges, we continue to encourage our clients and contractors to remain flexible and always look for ways to be creative when facing challenges. Here’s a quick list of some helpful tips and tricks:
Having a game plan for when challenges arise is paramount. SōL Harris/Day has seen these impacts and industry changes firsthand, and we can help navigate around any obstacles you may have. As architects, designers, and constructors, we love a challenge, and we have tried and true methods to tackle challenges of all shapes and sizes. We realize that each project is different, and each client has a different set of priorities. At SōL Harris/Day, we are dedicated to providing the professional and personalized services that are needed to meet our clients’ needs. If you have questions or need some guidance, reach out and let us know how we can help you!
Works Cited
Associated General Contractors of America, and Sage. “A Year in the Balance: The 2025 Construction Hiring and Business Outlook.” Associated General Contractors of America, 8 Jan. 2025.
Simonson, Ken. “Percentage Change in Producer Price Indexes (PPIs) and Employment Cost Indexes (ECIs) for Construction, 2019-2024.” Associated General Contractors of America, 12 Dec. 2024.
Simonson, Ken. “US Construction Outlook: Torrid or Tepid?” The Associated General Contractors of America, July 2024.
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