Construction costs are expected to continue to increase next year and put a crimp on commercial real estate developers, but fall more in line with the yearly increases historically seen.
That’s a welcome sign.
This comes after unprecedented rises in building costs during the COVID-19 pandemic driven by supply chain woes and labor issues, increased cost of building materials and other factors like the Russia-Ukraine war, which drove up costs of fuel and disrupted shipping, for example.
Dallas-based CBRE Inc., the world’s largest commercial real estate firm, says in 2023, costs nationally are expected to increase 4.3 percent, down from the 14.1 percent year-over-year increase seen this year and 11.5 percent in 2021. The increases are also expected to dampen in 2024, at 2.9 percent.
Typically the increases range from 2 to 4 percent nationwide, CBRE says, meaning it may be more of a return to normal — at least on the cost side.
Some of the material cost spikes that have been a hallmark of the global health crisis — lumber and steel mills shut down or reduced production, for example, reducing supply and driving up cost as demand for those products remains high — appear to be easing, although costs for some “may remain volatile” as things like tariffs and sanctions play out.
However, labor remains a key factor keeping prices rising, albeit at more measured rates — both on-site as well as in production facilities, said Chuck Binkowski, COO of Southfield-based contractor Barton Malow Co.