Sure, Lumber's Expensive and So Is Everything Else

The tale of lumber prices up to a record pinnacle in May, back down to normal in August, and now futures again over $1,000 per thousand board feet, has been a compelling story in commercial real estate.

But wood isn’t the only commodity that could prove an expensive challenge to development and construction. Many other products have been riding up.

The producer price index for fabricated structural iron and steel for industrial buildings has been on an upward streak, according to Bureau of Labor Statistic data pulled together by the Federal Reserve Bank of St. Louis. The PPI is up 35% year over year and is still on an upward slope, which means costs to builders will be as well. Prefabricated metal buildings and components from steel and iron, almost 44%.

For iron and steel pipe and tube manufactured from purchased iron and steel, the PPI is up almost 76% year over year. Gypsum building products/? A 23% jump. HVAC is up 12% since November 2020 and cement and concrete products are 8% higher, making the two relative bargains.

According to the National Association of Home Builders, building materials prices are now 14.1% higher than at the beginning of the year, a big jump over the November year-to-date increase of 3.9% over the prior year.

“Due to accelerating project volume in the general market, continued limited supply, increased shipping costs, longer shipping times, et cetera, we do not see a flattening or decrease in [steel] material costs in the next four to six months,” Cyrus Sanandaji, managing director and founder of Presidio Bay Ventures, tells GlobeSt.com. “Other more specialized steel and other metal components—metal decking, metal panels, metal studs, et cetera—are increasing at a much faster rate. In the case of metal studs and metal decking this escalation may be higher than 10% per month, or 18 times higher than normal on an annualized rate. We are looking to contract 2-3 months earlier in the design process for steel to lock in lower prices and paying close attention to the efficiency of the design to minimize the tonnage that is being used.”

“I think it’s going to level off in the second half of the year,” Jack Owen Boarman, CEO of BKV Group and managing partner for BKV-DC, tells GlobeSt.com. “I do have projects that are coming in 15% or 20% over budget. That is the one thing that will create a shortfall in production, and that will drive prices down quickly.”

But what could then happen is a ping-pong effect, with falling prices signaling projects to restart, increasing demand, and driving prices upward again.