Milwaukee construction costs increase 1.1% in Q1, outpacing the national average

Work continues on The Couture project in January. According to the Mortenson Cost Index of Q1 2023, Milwaukee construction costs outpaced the national average and labor challenges remained across the board. (File photo by Ethan Duran)

The first Mortenson Construction Cost Index of the year reported construction costs in Milwaukee grew 1.1% in the first fiscal quarter of 2023, outpacing the 0.6% national increase. According to the report, the rise in construction costs was beginning to slow down compared to hikes over the last two years, however finding labor was still a challenge for many contractors kicking off new projects.

Nonresidential construction costs across the nation increased in Q1 quarter by 0.6%, which is a 5% increase over the previous 12 months, Mortenson officials said. Most cost increases occurred in the second quarter of 2022. Some markets remained flat or showed slight decreases, following a trend from the previous quarter where regional markets reported little to no change in construction costs, officials added.

Mortenson officials said the construction cost index showed a continued slowdown for cost increases that happened over the last two years, but added they were “cautiously optimistic” as construction projects kick off and the demand for labor grows.

“Based on market data and our insights, we remain cautiously optimistic as demand for construction remains robust despite broader softness in the economy. We recommend customers remain adaptive relative to local markets, as growth in construction activity will continue to create stronger demand for labor and affect broader workforce availability for the balance of 2023,” according to the report.

Milwaukee and Seattle both had a 1.1% increase in Q1, Mortenson officials said. Phoenix saw the largest cost increase with 1.5%, according to the report. Denver costs decreased 0.3% and Minneapolis costs shrunk 0.1% and Portland reported flat costs overall for the quarter. Costs increased 4.2% in Milwaukee over the last 12 months, officials noted.

(Chart courtesy of Mortenson)

Labor issues in the construction industry remain a concern as worker shortages and tight labor markets have a foothold in regional markets, Mortenson officials said. Many projects are paying incentives to secure workforces while construction starts increase and large projects compete for laborers, officials added.

In the Milwaukee metro region, construction employment was a total of 32,400 in March, according to the U.S. Bureau of Labor Statistics. That’s a 2% increase, or 500 employees, compared to March 2022.

(Chart courtesy of Mortenson)

Prices for commodity-based materials such as lumber, structural steel and PVC pipe are showing signs of leveling off, officials said. However, there were still challenges with product lead times, material shortages and transportation logistics, officials added.

(Chart courtesy of Mortenson)

Recent signals from the Federal Reserve showed the cycle of rate increases may be over, although higher interest rates still weigh on both the construction sector and the broader economy, the report said. Employers continued to add jobs across Q1 despite the interest rate environment and unemployment was at 3.5% in March.

Both inflation and interest rate increases impacted construction costs such as decreasing lumber prices by nearly 18%, according to the report. With lower consumer demand and import volumes comes a decrease in the cost of domestic freight, relieving supply chain pressures as capacity becomes available in tandem with slowing demand, officials noted.

Mortenson tracks seven metros: Milwaukee, Chicago, Minneapolis, Denver, Seattle, Portland and Phoenix.