By Roland Murphy for AZBEX
A pair of recently released market reports paint an interesting picture of the national construction and commercial real estate markets and give insights into where Phoenix and Arizona fit into the overall matrix.
The two reports from Rider Levett Bucknall show Phoenix construction continues to grow, albeit at a more modest pace than in previous reviews. The company’s RLB Crane Index – North America Q3 2022 report finds a nominal national decrease in cranes, falling by three from the Q1 report. Nine of the cities surveyed showed increases; one decreased, and four were unchanged.
According to the Phoenix summary: “This quarter’s crane count is up one from last report in the Phoenix area. A new crane has been added downtown on PALMtower, a new 28-story residential high rise that broke ground at the corner of 5th (Street) and Van Buren. The two tower cranes from the previous count remained in place and both Moontower Phoenix and Skye on Sixth are scheduled for completion in 2023.”
Phoenix YoY Construction Costs up 7.27%
RLB also released its North America Quarterly Construction Cost Report for Q3. Unsurprisingly, costs continue to rise in all 12 of the major markets examined.
Chicago saw the greatest annual percent change at 14.04%, followed by Seattle at 11.8%. Honolulu and Washington, D.C. reported the smallest increases with 5.06% and 6.2%, respectively.
Phoenix was near the middle of the list at 7.27%, on par with Los Angeles at 7.29%.
The RLB Construction Cost Report examines several industry indicators as part of its causal examination. Among the data included:
- U.S. Gross Domestic Product: Down 0.6%;
- Consumer Price Index: Up to 296.3 in Q2 versus 287.5 in Q1;
- Architectural Billings Index: Down to 53.2 in Q2 from 58.0 in Q1;
- Construction Unemployment: 4.6% in Q2 compared to 6.0% in Q1 and 4.5% in Q3 2021;
- National Unemployment: 3.6% in Q2, down from 3.8% in Q1 and 5.1% in Q3 2021.
The report also includes reference to the Associated Builders and Contractors’ Construction Backlog Indicator, which shows the average national construction backlog in months, by quarter. According to the summary, “The CBI returns to pre-pandemic levels for the first time in Q2 2022 (8.9), exceeding the ten-year average of 8.5. This indicates a busy industry with plenty of projects on the books and is possibly exacerbated by labor shortages and supply chain issues which are making projects take longer.”
The report introduction from Julian Anderson, RLB’s president, North America, could have been written by Alphonse Karr – the person credited with the famous quote: “The more things change, the more they stay the same.”
Anderson begins his introduction with, “Amid recessionary fears, continued inflation and higher staffing costs, overall commercial construction activity has remained strong. With this demand for construction services, there are some significant challenges impacting construction schedules and the ability to reach profitability goals that are resulting from supply-side issues including worker shortages, equipment delivery delays and elevated materials prices.”
He points out that even though inflation had a token easing in July and August, it remains at 40-year highs and was higher than expected in market forecasts. The forecasts predicted inflation at 8.1%, while the actual level was reported at 8.3%.
Perhaps the most interesting quote in Anderson’s introduction was the following explanation of material costs in the study period: “Overall material costs rose 10 percent nationally in the first half of the year, with specific shortages in glass and concrete. From July to August, the price of materials and services used in nonresidential construction finally dropped by just over one percent, but it was the dramatic drop in fuel prices that masked the actual cost of construction supplies.”
While everything about the report carries the tone of “more of the same,” Anderson still managed to end his introduction on a somewhat optimistic note. He said that while the future is impossible to predict, improvements may happen if construction companies take more active roles in developing supply chain resilience, continue to invest in technology upgrades and make better use of more proactive forecasting.
For the moment, though, we’ll take the rare opportunity to quote Hunter S. Thompson, who closed many columns in his 1988 collection Generation of Swine by simply (if cynically) saying, “Alphonse Karr was right.”