CBRE is predicting that by the end of 2022, construction costs will increase 14.1 percent since last year, the highest increase since the firm started tracking construction costs numbers in 2007. The figure surpassed last year’s 11.5 percent increase in construction costs and is significantly higher than historical price gains, which average between 2 to 4 percent per year. CBRE attributed the jump in costs to the myriad issues the country is facing, including inflation, supply train disruption, labor shortages and the war in Ukraine. “The construction industry thrives on predictability, but we continue to grapple this year with numerous challenges and volatility, making estimating and managing costs more difficult,” said Nicolas McNamara of CBRE.
As construction costs continue to rise, demand is high at the moment for residential housing, major infrastructure projects, and industrial properties. According to multifamily trade group NMHC, costs for materials used in apartment construction have gone up across the board in the second quarter of 2022, with the exception of lumber, which has seen prices fall by 5 percent. Meanwhile, exterior finishes and roofing, electrical components, and insulation all had double-digit price jumps.
While construction costs have been on the rise for some time, relief is expected to come by next year. CBRE is forecasting that cost increases will drop down to 4.3 percent in 2023 and 2.9 percent in 2024, as some of the factors driving the increases, like supply chain issues, inflation, and production delays, begin to resolve. However, some issues are likely to hang around for a while. Shortages of certain materials, longer-than-usual lead times for delivery of materials, shortages of components such as semiconductors, and the ongoing labor shortage are expected to persist for the foreseeable future. With many materials in short supply and developers facing long wait times to receive them, involving suppliers as early in the development process as possible could help avoid further delay.