U.S. Construction Spending Reaches Highest Level Since 2008

PHOENIX, Ariz. — Rider Levett Bucknall, international property and construction consultants, reported that U.S. construction spending is at its highest level since 2008, although construction costs increased by 1.38 percent in the second quarter of 2014 (5.52 percent on an annualized basis). The firm published its findings in its newly released Third Quarter 2014 USA Construction Cost Report.

Rider Levett Bucknall's research indicates that recent optimism about the construction industry has been heightened by the news that construction spending rebounded strongly in July, reaching its highest level in six years. Improvements were shown in both private and public construction investment and manufacturing activity.

According to the U.S. Department of Commerce, construction put-in- place during June 2014 was estimated at a seasonally adjusted annual rate of $950.2 billion, which is 1.8 percent below the revised May estimate of $967.8 billion. The June 2014 figure is 5.5 percent above the June 2013 estimate of $900.3 billion. The value of construction for the first six months of this year was $445.1 billion, 7.8 percent above the same period in 2013.

The firm's research further indicates that the increase in construction costs for the period, which combined with other notable increases in 2014, may be the first signs that a potential uptick in construction costs is looming.

Rider Levett Bucknall tracks construction costs in 12 major U.S. cities. From April 1 to July 1, the national average increase in construction cost was 1.38 percent, the largest increase in the last six years. Boston, Massachusetts; New York, New York; San Francisco, California and Washington, D.C. all experienced increases between 1.5 percent and 1.67 percent for the period with Honolulu, Hawaii experiencing the largest increase of over 3 percent. All other locations experienced gains ranging from 0.69 percent (Los Angeles, California) to 1.27 percent (Chicago, Illinois).

The report also notes that much of the recent cost increases can be attributed to the lack of available skilled construction workers to support increased demand within the industry — a trend that will most likely become more severe as demand continues to grow. This lack of skilled labor is already creating a strain on the construction industry in some regions, particularly in the oil boom states and in cities such as New York and Honolulu, Hawaii.

“In order to get ahead of a potentially significant rise in construction costs, developers should begin implementing different strategies now,” said Julian Anderson, president of Rider Levett Bucknall North America. “Strategies to consider may include early procurement of key inputs, fast tracking of the project and increased focus on cost planning of the project.”