Report Indicates U.S. Construction Costs Gain Largest Increase Since 2008

PHOENIX, Ariz. — Rider Levett Bucknall announced a 1.15 percent increase in U.S. construction costs in the first quarter of 2014 (4.6 percent on an annualized basis), the largest since July 2008, despite a slight 0.10 percent rise in GDP for the same period. The firm published its findings in its newly released Second Quarter 2014 USA Construction Cost Report.

According to Rider Levett Bucknall's research, for the past six years, overall construction costs have been relatively flat and are beginning to show evidence of spiking. These increases result from a variety of factors including increased construction activity, easing of general contractor price compression and the availability of labor and sub-trades.  

Rider Levett Bucknall tracks construction costs in 12 major U.S. cities, which overall experienced an average increase of 1.15 percent between Jan. 1 and April 1. Honolulu, Hawaii and Portland, Oregon had the highest quarterly increases at 3.81 percent and 1.48 percent, respectively. All other locations experienced gains ranging from 0.61 percent (Las Vegas, Nevada) to 1.01 percent   (Washington, D.C.).

The firm's research further indicates that the housing sector will continue to lead increases in new construction throughout 2014. Additional sectors expected to see gains in new construction include educational and institutional buildings, commercial buildings, healthcare and manufacturing facilities.

According to the U.S. Department of Commerce, construction put-in-place during March 2014 was estimated at a seasonally adjusted annual rate of $942.5 billion, which is 0.2 percent above the revised February estimate of $940.8 billion. The March 2014 figure is 8.4 percent above the March 2013 estimate of $869.2 billion. The value of construction for the first three months of this year was $196.6 billion, 8.3 percent above the same period in 2013.

Despite growing optimism surrounding the U.S. construction industry, Rider Levett Bucknall's report notes that some A/E/C firms have lingering concerns regarding employee shortages, rising employment and construction costs and the impact of recent federal budget cuts.

Furthermore, lack of skilled labor will create a strain on the construction industry in some regions. In those regions with limited skilled labor, the problem may be exacerbated by large-scale projects draining resources from smaller projects.  

“Developers will need to devise different strategies to overcome rising costs to try to get ahead of them,” states Julian Anderson, president of Rider Levett Bucknall North America. “Strategies may range from introducing Lean design and construction techniques, to adopting different procurement processes, to analyzing project scope, to using alternative construction materials and methodologies.”