L.A. Construction Costs Up 4.4%

Construction costs in Los Angeles are increasing below the national average and several other popular West Coast markets. According to property and construction consultancy firm Rider Levett Bucknall, construction costs in Los Angeles increased 4.4% in 2018, while costs nationally were up 5.73%. Phoenix, San Francisco, Portland and Seattle, experienced some of the highest construction costs increases in the nation, with Portland seeing the highest price increase on the West Coast at 7.13%.

“If you look at our index, the 4.4% increase is a standard amount of growth,” Brian Lowder, principal at Rider Levett Bucknall, tells GlobeSt.com. “Despite the increase in construction costs, we are continuing to experience significant projects in the Los Angeles area. We are seeing a healthy economy, and I don’t think that we have reached the peak of the cycle yet.”

Los Angeles actually ranks among the US markets with the lowest increase in construction costs. Las Vegas and Denver were the only on the Western US markets to make the cut, with 5.41% and 4.02% increase respectively.

A dearth in construction labor and rising materials are contributors to the increased costs. Labor in particular has been a challenge for developers. “In terms of the available workforce, we are so busy and we have never been able to replenish our construction workforce from the 2008 downfall,” says Lowder. “A lot of people left the market and got into other types of careers. We still experience that. Larger projects take longer as a result, and they don’t always end up as planned or scheduled. That is really due to the shortage of labor; however, the problem is getting better. I don’t think it is as bad as it was a few years ago.” According to the same report, construction unemployment is 5.1%.

In terms of activity, new construction in Los Angeles is active across asset classes. Lowder says that there is no one clear leader in terms of construction activity. “The diversity of the different types of construction allows developers to do well and continue to look for new and exciting projects,” he says. “It is all across the board. We have medical faculties being built and renovated; hotel properties being built and renovated. In Long Beach, there is a lot of retail construction.”

Looking ahead, Lowder expects to see moderate growth in construction prices for the Los Angeles market. Prices this year may actually level before seeing similar standard increases in pricing. “These markets are going to continue to grow,” he says. “In the next six to eight months, there will likely be a leveling effect followed by a continued increase in pricing.”