Construction Costs Continue to Rise Through Pandemic

Construction costs has continued to rise through the pandemic. According to a new report from construction consultancy firm Rider Levett Bucknall, Los Angeles construction prices have increased more than 2%, while national construction costs are up 1.64%. The report analyzes the first few months of the pandemic, when market activity slowed significantly.

“The current RLB quarterly cost report update, which considers the first few months of the pandemic, shows construction cost continuing to increase nationally but a at slower pace than previously years,” Brian Lowder, Los Angeles resident manager at Rider Levett Bucknall, tells GlobeSt.com.

Los Angeles is at the top of the list for construction cost growth. That is likely because Los Angeles development didn’t slow down as a result of the pandemic. “Los Angeles construction was still in full swing, material pricing was on the rise, and skilled labor shortages meant that skilled labor came at a premium,” says Lowder. “Most projects could continue to move forward under strict health & safety guidelines—as opposed to grinding to a total halt—which resulted in additional project cost impacts. These cost impacts will continue through the end of the pandemic.”

While construction pricing continued to grow at the start of the pandemic, it will likely adjust due to the market dislocation. “We believe there will be a flattening trend for the majority of the year with the potential for some decreases as we move into 2021,” says Lowder. “Reasons for the flattening affect include, but are not limited to: increases in cost due to strict worker health & safety guideline procedures; decreases in contractors’ backlog of work, resulting in contractors reducing profit margins just to maintain continual work; and reductions already noted in the AIA Architectural Billings Index in the months of April, May and June, indicating fewer new projects in the pipeline. Also, remember that it can take up to a year or more to fully design a project to get it to contractor bidding stage.”

Lowder expects that Los Angeles will follow the national trends with either decreasing or flat construction rates. “While I do not believe you will see rising construction cost, we do anticipate a flattening of cost through the end of the year with a decline in development activity continuing into 2021,” adds Lowder.