ProSpeak

In recent years, the construction industry has witnessed unprecedented growth in costs. Those of us in the industry are constantly contending with the changes as we outline budgets for new projects. So, what’s behind these rising costs? 

The State of Construction Costs
Higher costs are based on multiple factors, but material and labor play a large role in the final cost. Since January 2021, construction costs have increased exponentially as a result of the increasing cost of materials and construction demand. It began to level off from the construction cost peak in the summer of 2023 and has maintained that plateau throughout 2024.

The Driving Forces Behind Rising Costs
What’s causing the increase in construction costs? 

• Lumber and wood products peaked in May 2021 but have since stabilized. Over the past year, prices have returned to more standard levels. 
• Steel reached its highpoint in February 2022 and is on a steady decline. While it’s encouraging to see this trend continue, we should be cautious as the costs will never dip down to the normal escalation trend. 
• Mechanical and electrical equipment skyrocketed in the summer of 2021. We saw those costs plateau in early 2024 and are optimistic about a potential decline.

Lead Time Considerations
Another critical aspect of construction planning involves lead times for essential items, particularly in renovation projects. Lead times begin after contracts are awarded and shop drawing approvals are obtained. For smaller renovation projects, securing these approvals ahead of the construction start date can help ensure materials arrive on time, meeting completion schedules.

Stabilization and Future Projections
Despite recent tumultuous changes, there is hope construction costs are stabilizing. Looking ahead, we anticipate a 5.25% escalation rate for 2025 and expect at least a 5% annual escalation for subsequent projects.  

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