Insight
2021 Q2 Construction Cost Insights
Uncertainty requires agile approach to market and procurement strategies

 

The construction market, like many, is experiencing unprecedented inflationary headwinds, which are presenting unique challenges. Given this, in lieu of publishing the Mortenson Construction Cost Index report for the 2nd quarter, we believe it’s appropriate to provide further insights into today’s construction cost landscape, including input prices and our perspective on the unique conditions currently affecting the U.S. construction industry.

The Mortenson Construction Cost Index data continues to indicate significant volatility in the market with increases in all 30 component categories tracked, which includes labor, material, equipment, and trade partner feedback. For the 2nd quarter, our construction cost data is signaling an average input cost increase of 9%. There is an overall 14% average increase in component costs year to date.

While there is evidence that many material prices may have peaked or are near-peak, supply chain disruptions continue along with labor shortages and logistical challenges, which are tending to further increase costs in the moment. Subcontractors and suppliers have worked to absorb some of these increases, which has lessened the overall impact to projects so far. While this has been beneficial, we don’t believe this approach is sustainable over a longer term.

We believe that growing construction demand and supply chain disruptions tied to the pandemic are leading to the increases we are seeing. While we don’t believe this level of increases is here to stay, it is too soon to say what the future holds and where costs will eventually settle. It’s also important to note that some of the component cost increases are not impacting projects equally at this point. This year presents significant uncertainty and requires an agile approach to the market and procurement strategies for projects.

Observations:

  • Recent projects used for comparison have shown annualized increases varying from 0% to 15%, indicating that some increases in costs have been absorbed while others have not. It also represents the volatility in the market today and the challenges that brings.
  • Price spikes over the past year appear to be decreasing and leveling out to a higher new-normal compared to a year ago
  • Lumber prices are falling as mills ramp up and inventories stabilize
  • Copper has stabilized after a peak in early May
  • Aluminum continues to see steady price increases, with more demand due to more products being manufactured from aluminum
  • Resin production is nearly recovered with supply close to meeting demand. Expecting moderate increases to continue with the cost of petroleum
  • Steel prices are slowly decreasing after peaking in the 2nd quarter and are predicted to continue downward through the end of the year
  • All 30 components tracked by the Mortenson Cost Index showed increases with 20 of them increasing by more than 5% for the quarter

Most notable:

  • Reinforcing steel up nearly 15%
  • Structural steel up 24%
  • Roofing up 13%
  • Fire Protection up 17%
  • Mechanical, electrical, and plumbing up 12%

Material Pricing Q2 2021

The Associated General Contractors of America (AGC) has similar observations. The AGC has reported that contractor’s costs rose 26.3% overall from June 2020 to June 2021. They also indicated that in addition to materials costs, transportation and fuel also spiked.

No one industry or building type has been exempt from these economic climate-related difficulties. Mortenson is working to minimize negative impacts to projects through engagement in the design phase, proactively offering innovative, cost-sensitive solutions, and working with suppliers and project partners to lock down costs early in the process and deliver the most value.

Publication of the Mortenson Construction Cost Index will resume for the 3rd quarter 2021. Mortenson tracks and reports on seven metropolitan areas in the U.S. including Chicago, Denver, Milwaukee, Minneapolis, Phoenix, Portland and Seattle. The Mortenson Construction Cost Index is calculated quarterly by pricing representative non-residential construction projects in various metropolitan areas. It is part of a portfolio of industry insights and market studies provided by Mortenson.

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