By Luci Scott for Arizona Builder’s Exchange
Optimism in the construction industry nationwide rose during 2014, and construction starts are expected to rise about 10 percent in 2015, almost twice the estimated growth rate of 2014.
That’s the word from the fourth-quarter construction-cost report issued by Rider Levett Bucknall, which predicts that continued growth will be spurred by improved financing, a stronger focus on construction investment and stronger commercial building and residential markets.
Most growth is expected in commercial and institutional buildings, single- and multi-family housing and industrial and manufacturing. A more modest gain is predicted in public infrastructure. That growth will increase the need for labor, materials, equipment and professionals, which, in turn, will fuel rising costs.
Figures for the report are compiled from the U.S. Department of Commerce and by RLB employees in 12 cities, including Scott Macpherson, senior vice president in Phoenix.
Optimism may reflect the mood nationwide, but attitudes in Phoenix are more subdued.
“I didn’t see (optimism) as strongly,” Macpherson said. “Here it seems to be a little bit slower picking up momentum.”
Boom and Bust
Macpherson said Phoenix historically has lived with a boom-and-bust economy, but this time it’s not accelerating as quickly and that may not be a bad thing in the long run.
The latest quarterly report, which contains data current to Oct. 1, 2014, says the value of construction nationwide during the first nine months of the year was $710.1B, which is 6.1% above the same period in 2013, according to the U.S. Department of Commerce.
RLB’s research showed that between July 1, 2014 and Oct. 1, 2014, the national average increase in construction cost was 1.66%, the largest increase for the period since early 2008. The increase for Phoenix was 1.04%.
More Work than Subcontractors
Pricing is being driven up because subcontractors can’t quite support all the work going on; the subs pick and choose the jobs they want, looking for opportunities for greater levels of profit or easier working conditions. Whereas in the past, five to eight subcontractors may have bid on a job, and now it’s one to three, so competition is less.
RLB doesn’t just research and produce the quarterly reports; Macpherson encourages clients to call to discuss the reports.
“If clients have a project say, in Denver, and a similar project in Boston, they can see the difference in costs and understand them,” he said. “We encourage them to call us and give their thoughts.”
In compiling the reports, RLB’s employees in 12 cities factor in labor costs; changes in hourly rates; and costs of sand, steel, concrete and masonry block.
“The real crux … is a basket of goods, which is the same for each office,” Macpherson said. “That includes 50 to 60 items that are elements of building.” Among the items he checks for prices are excavation, formwork, rebar, bitumen membrane, concrete masonry unit, stucco, structural steel, roof sheathing, glazing, gypsum board, tiling, carpet, plumbing fixtures and piping, HVAC, electrical, elevators, and concrete (slab-on-grade, suspended slabs, walls, columns and beams). He also checks on other expenses such as insurance and taxes.
To ascertain the costs in Phoenix, Macpherson goes to suppliers such as Suntec Concrete, Schuff and Able for steel, Walters & Wolf for glazing and Trane for HVAC.
Then the staff members in the 12 cities review their numbers with one another, looking for checks and balances.
Macpherson noted that wide swings are not seen in costs over just a three-month time frame; the local projects that do show quite a range in cost are those at Arizona State University since a standard, three-story classroom building costs much less to build than does a structure filled with complicated laboratories.
The Phoenix market is still very competitive for subcontractors, he noted, saying, “We’re seeing good coverage in subcontractors’ bidding. … We don’t have the labor pool we had.”
He is encouraged by his sense that municipalities have a little bit more money now for capital improvement projects, and he is beginning to see a little increase in RFPs.