Construction Costs Will Be More Manageable in 2020
While rising construction costs have been the biggest challenge in recent years, costs are starting to stabilize.
It could be the best end-of-year bonus for a developer—construction costs are beginning to stabilize. Rising construction costs have been the biggest challenge for developers in recent years, but this year, costs started to stabilize, and in 2020, construction experts expect that trend to continue.
“Construction costs became much more manageable in 2019, and we expect this trend to continue into 2020,” Karl Kreutziger, president of C.W. Driver Cos., tells GlobeSt.com. “While 5-6% yearly increases plagued the industry leading up to 2019, since then more manageable 2-3% increases have been common. This is good news, as the previous, more drastic increases meant that costs could balloon as much as 15-18%-plus between entitlement and permitting. We don’t yet know how commodities such as steel, lumber and concrete will fare in 2020, particularly with pending trade issues and tariffs, but we don’t anticipate as large of increases as in years past.”
This is good news for developers, not only because rising construction costs have been a significant challenge, but also because construction activity is expected to remain strong through 2020, even in the event of a downturn. “We anticipate little impact on construction activity, even in the event of an economic downturn, as most projects for 2020 have been in the pipeline for some time now,” says Kreutziger.
Despite the expected strong construction pipeline, C.W. Driver is working closely with developers to build flexibility into new projects, in the event of an economic disruption. “No one has a crystal ball as to when a downturn may occur, but C.W. Driver is prepared to be nimble and adapt based on market demands if a downturn does occur in 2020 or beyond,” says Kreutziger. “Much of the civic and public work we’ve been focusing on for K-12 schools, universities and cities is funded by public bonds, making it much more recession-proof than other sectors.”
That includes working with developers to mitigate rising construction costs. “At C.W. Driver we help mitigate the impact of future increases by securing materials and negotiating with the trades as early as possible during pre-construction,” says Kreutziger. “We also stay in close communication with our subcontractors and projects partners to get their insights on where commodity prices may be heading in an effort to get in front of potential increases.”