Report: Construction-cost increases moderate to pre-pandemic levels

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By Chuck Slothower
BridgeTower Media Newswires

Construction cost increases have returned to normal, a Skanska executive stated in a quarterly trends report.

“Annual escalation trends have returned to the pre-pandemic norm of 2 to 4%,” Steve Stouthamer, executive vice president for Skanska USA, wrote in the company’s report. “As we approach summer, it is a welcome relief to share that we expect this trend to continue.”

Costs of construction materials peaked in May 2022, according to federal data. After a brief jump in February, the past three months have seen steady declines.

The biggest change for contractors is greater predictability, said Brandon Huff, vice president and division manager for general construction at Deacon Construction in Portland.

“I would say material pricing is holding,” Huff said in an interview. “I don’t necessarily see it dropping too much. It’s more consistent.”

During pandemic disruptions, prices from subcontractors could change on a near-daily basis. Those rapid, unexpected increases have ended, Huff said.

“It’s stabilized,” he said.

Nationally, expected interest rate cuts from the Federal Reserve have not materialized. That’s weighed on private development, as costs to borrow remain high.

“Declines in commercial office and privately financed development projects are being offset by public infrastructure projects, technology/data center projects, continued primary and secondary educational spending and health care project investments,” Stouthamer stated.

“The larger (private) projects that have a lot of financing required are harder to move, so we’re seeing a lot of the smaller renovation projects still being prevalent, and some of the small commercial projects still being prevalent,” Huff said.

The cost of concrete is up 22.1% in the past year, and 4.9% in the past three months. Prices were at $189 per cubic yard for 4000 PSI concrete as of March, according to Engineering News-Record data cited by Skanska.

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“Concrete escalated pretty steadily during 2023, and this trend is continuing so far this year,” said Rob Cantando, Skanska’s director of strategic supply chain. Price increases are driven by diesel, labor and raw material costs, he said.

Cantando spoke during a webinar on construction materials markets convened by Skanska earlier this month.

The cost of drywall is up 16% for the year. Wall insulation has dropped 14.7%.

Lumber “continues to bounce around at the bottom of the market,” due to oversupply and a slow housing market, Skanska stated in its quarterly report.

Factories that make insulated metal panels, also called sandwich walls, are running at full capacity, with record shipments, due to demand for data facilities and electric-vehicle factories, Cantando said.

Lead times for the panels will remain elevated in the short term, but decline in the fall, he said.

The March 26 collapse of the Francis Scott Key Bridge in Baltimore has had little effect on construction materials availability, Cantando said. The port is primarily used for receiving passenger vehicles, he said.

“Very little construction material actually flows through the port,” he said.

Lead times for heating and cooling equipment remain high at 25 to 65 weeks, but are beginning to decline, Cantando said.

The cost of copper remains elevated at $4.57 per pound, a 21.8% jump in the past quarter. A mine closure in Panama, labor strikes in Peru and reduced production in China are contributing to higher prices, Cantando said. Prices are also factoring in “anticipation of exploding demand,” largely due to EV demand, he said.

Gasoline-powered Honda Accords use 40 pounds of copper per vehicle, Cantando said. Yet electric Accords use 200 pounds of copper.