Build Now or Pay More Later: Non-Residential Construction Costs Trending Up in 2017

While the rate of growth in construction employment has plateaued in several of the markets tracked, the non-residential construction labor market is considered healthy according to employment data from the Bureau of Labor Statistics. The Mortenson Construction Cost Index also tracks building component trends in 30 categories across all markets with many component prices flat to up as much as 8.4% in the fourth quarter of 2016.

Highlights

• The cost index for Chicago increased 4.3% throughout 2016 and experienced one of the strongest quarterly growth rates (Q3 2016 - Q4 2016) over the last several years. Construction employment ended the year relatively flat. Project owners should anticipate cost increases of 4.0% in 2017.
• Denver construction employment remained relatively flat in 2016 with growth at a solid 5%. In Q4 2016, the Denver cost index increased 2.4% compared to Q3 2016. This is the strongest growth the index has seen in several years, and hints at an acceleration of growth moving forward. For all of 2016, the Denver index increased 6.1%.
• Milwaukee's construction labor market growth has been modest, growing 2% in the latest quarter. Despite the slower growth in the labor market, the overall Milwaukee construction cost index finished 2016 with accelerated growth. Building owners should plan on a 4% annual increase in project costs in the coming year.
• After leveling off somewhat in 2016, Minneapolis-St. Paul construction growth appears to have accelerated at the end of the year. For all of 2016, the cost index increased 2.7%. Construction employment growth has been mixed.
• The Phoenix cost index ended 2016 4.5% above year-end 2015. Construction employment growth in the latest quarter (Q4 2016) was also strong, up 8% after fluctuating over the past few years. Building owners should plan on a 3% - 4% increase in project costs in 2017.
• Seattle continues with robust employment growth (up 14% in 2016). For all of 2016, the Seattle cost index rose 4.3%. It is recommended that building owners plan on a 4.0% - 4.5% increase for projects in 2017.

"There continues to be solid activity and some growth in the markets we track although average project size is reduced relative to recent years." said Clark Taylor, vice president of estimating, at Mortenson. "Construction employment is leveling out in some locations and price escalation should be more consistent with long-term averages."

Mortenson tracks and reports on six metropolitan areas in the U.S. including Chicago, Denver, Minneapolis, Milwaukee, Phoenix 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. The Construction Cost Index is available for download at http://www.mortenson.com/cost-index. A podcast with more insight on the topic is also available at http://www.mortenson.com/company/news-and-insights/bwn-q4-2016-cost-index-podcast.

About Mortenson

Founded in 1954, Mortenson is a U.S.-based, family-owned construction and development services company. As one of the nation's top builders, Mortenson provides a complete range of construction services, including planning, program management, preconstruction, general contracting, construction management and design-build. The company also is a leader in real estate development, developing all asset types.

Mortenson has operations across North America with offices in Chicago, Denver, Fargo, Iowa City, Milwaukee, Minneapolis, Phoenix, Portland, San Antonio, Seattle, Washington, D.C., and in Canada. For more information, visit mortenson.com.

SOURCE Mortenson