US Construction Inflation Rates Pile Onto Already High Costs

If you’re looking to build a commercial real estate property on a budget, there are a number of US metro areas to pass by. According to Turner & Townsend, multiple parts of the country see upward pressures on labor costs coupled with continued supply chain troubles and rising demand has made construction prices challenging.

At the moment, the most expensive place to build in the world is San Francisco. “Housing demand in this location also remains at an all-time high,” the report said. “This is led partly by projects delayed during the pandemic, but also by the acute shortage in housing stock. The rate of development is especially high on the Peninsula and in San Jose, with Google, for example, delivering residential buildings as part of a corporate drive towards meeting high affordable housing demand.”

Global number four New York City is the second most expensive place in the U.S. for construction and “New York is continuing to experience a race to the skies with demand for new supertall towers,” according to Turner & Townsend. “In addition, Mayor Adams has promised to ‘supercharge’ economic development, loosening zoning regulations while committing to new apartment building across the five boroughs. A focus on zero carbon is also leading an emerging retrofit market for existing buildings.”

One of the factors driving costs in both cities is the difficulty in retaining skilled labor when “tertiary markets such as Austin and Phoenix, and rural areas in states such as Kentucky and Georgia” have seen “a surge in new industrial development.” And San Francisco depends on pulling in labor from surrounding states. 

Another factor, not mentioned by the firm, is the cost of living in the two cities. Workers likely find the combination of decent wage and lower expenses in many areas to be compelling.

But the focus on the two coastal poles shouldn’t distract from how expensive construction is in many other areas in the U.S. For a momentary global context, the firm estimated competing construction costs of a high-rise prestige office building in a central business district. Out of the top 20 most expensive metro areas, 11 were in the U.S. Six were in Europe, two in Japan, and one in Canada.

“Total construction in the US increased 11.2 percent to US$1.7tn in the year to February 2022 (US Census Bureau) with residential contributing around half of the total,” the report noted. “Whilst residential grew by 16.5 percent year-on-year, commercial construction saw growth of 18 percent, recovering from a low base during 2020.”