By Roland Murphy for AZBEX
While the Arizona and national construction environments are still far from being able to say, “All is well,” Rider Levett Bucknall’s latest North America Quarterly Construction Cost Report and Q1 Crane Index both indicate a sense of cautious optimism for calm that may not be misplaced.
Quarterly Construction Costs
RLB cites U.S. Department of Commerce data to report $1.826T of construction was put in place in January 2023. This represents a decrease of 0.1% from December 2022, but a 5.7% increase from January 2022.
Nationally, the average increase in construction cost was 8.11%. The largest increases were shown in Boston, Chicago, Denver, Phoenix, Portland and Seattle.
At 8.44%, Phoenix was seventh among the 14 markets surveyed. Honolulu had the lowest annual increase at 5.06%, while Chicago saw the highest at 11.22%.
Key indicators noted in the report include:
- Gross Domestic Product increased at a rate of 2.6% in Q4 2022, after increasing 3.2% in Q3;
- The Consumer Price Index nudged upward at the end of Q4, setting at 299.2;
- The Architectural Billings Index for January remained below 50 for the fourth consecutive month, ending at 49.3, and
- The national unemployment rate for Q4 2022 was 3.6%, while construction unemployment was 4.4%.
Crane Index
RLB’s Crane Index tracks how many tower cranes are operating on projects in 14 major markets across the U.S. and Canada.
As an industry barometer, “The Crane Index tracks the number of fixed cranes on construction sites and gives a simplified measure of the current state of the construction industry’s workload in each location.”
The Q1 summary shows a 7.04% increase, with 34 cranes added compared with Q3 2022. Eight surveyed cities added cranes, four were unchanged and two decreased.
In its review of Phoenix crane activity, RLB reports, “Phoenix has seen a sharp increase in the number of cranes since the previous count, with six new cranes added (one for healthcare; three for mixed-use; and two new additions to residential). One trend to note is that most construction continues to be in the residential sector.”
State of the Market
In his “At a Glance” column introducing the cost report, RLB President, North America Julian Anderson writes the North American construction market is “less bad” than experts predicted as recently as a couple of months ago.
On the positive side, inflation may be inching in the right direction, construction employment has reached record levels, and funding under the Infrastructure Investment and Jobs Act is finally reaching the project level.
It is not, however, time to break out the champagne just yet. We still face a generational shortage of skilled workers. Inflation remains problematic, and more interest rate increases from the Federal Reserve are a near-certainty. All this results in a devaluation of project funding.
Even the progress in IIJA funding comes with a caveat. Anderson writes, “There’s also been some frustration with some of the projects’ tax credit and ‘buy American’ requirements, and the program’s start has taken longer than hoped. But the good news is that the IIJA funds have now reached the states, money has been allocated to projects, and states are working on getting the projects out to bid.”
It is wise to recall that old problems are often replaced by new ones, much like the way new variants of viruses come along seemingly as soon as we get a handle on prior pandemics. In wrapping up his summary, Anderson says, “When we think about where at this time last year, with the pandemic, escalating geopolitical concerns, ongoing supply chain issues, and construction costs, it can be hard to see the forest through the trees. While much has improved on those fronts, the current concerns around oil prices and the impact of intensifying bank stress are something to keep a close eye on. The big picture for the remainder of 2023 looks challenging, but for different reasons from those that were impacting a year ago.”