CBRE: Constructions costs to increase 14.1% this year

There is some light at the end of the tunnel when it comes to rising construction costs.

Rising prices for labor and materials continue to pressure construction costs.

Construction costs are forecast to rise 14.1% this year due to rising prices for labor and materials, according to CBRE’s U.S. Construction Cost Trends report. Annual increases, however, should return to the historical average of between 2% and 4% in 2023 and 2024.

Supply chain-related disruptions should begin to ease, but ongoing labor and component shortages will impair production and logistics capacity, CBRE said.

Overall cost inflation for materials is expected to begin easing by the end of 2022 and largely return to typical levels by mid-2023.

The report noted that input costs — the price paid for all goods and services, excluding labor and capital investment, used by construction firms — for new nonresidential construction were up 42.5% from March 2020 to March 2022, after falling briefly during the early stages of the pandemic. The cost of steel mill products, some plastic piping, and softwood veneer and plywood have more than doubled since March 2020.

Prices for some materials, like ready-mix concrete, which makes up 10% of the overall goods index, have not risen as dramatically and have kept the figure slightly down, as have other non-metallic and non-wood commodities.

Construction output, the price charged by construction firms for completed projects, has also risen sharply. 

Other highlights from the CBRE report, available here, are below.

• Labor availability is expected to remain tight for the near term, putting pressure on wages. Construction wage growth likely will be higher than average U.S. wage growth this year.

• Labor availability is expected to remain tight for the near term, putting pressure on wages. Construction wage growth likely will be higher than average U.S. wage growth this year.