Construction Market Trends
Stay up to date on the dynamics of the construction industry with Skanska USA Building’s Construction Market Trends Report. Explore regional construction escalation insights and forecasts, supply chain lead times, material pricing and critical market indices through this interactive report.
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Spring 2024
As mentioned in our winter report, construction escalation levels have stabilized. While some geographic markets are still feeling the inflation pressure of unusually heavy construction volume and labor resource constraints, from a national perspective, annual escalation trends have returned to the pre-pandemic norm of two to four percent. As we approach summer, it is a welcome relief to share that we expect this trend to continue. Inflation is still top of mind for the near future. Many experts had anticipated the Federal Reserve would have already announced interest rate cuts this year as supply challenges eased and buyers began to see improved leverage. But that has not been the case. While commercial construction pricing has stabilized, there are continued signs that the Fed’s battle against inflation is still raging. One key measure—the Consumer Price Index—has seen two consecutive months of 0.4 percent inflation or a 4.8 percent annual trend. The index’s Energy and Shelter (housing) components have driven the CPI more than 1.5 percent above its previous 12-month pace, causing the Fed to pause further interest rate cuts. Declines in commercial office and privately financed development projects are being offset by public infrastructure projects, technology/data center projects, continued primary and secondary educational spending and healthcare project investments. Construction unemployment remains near record lows, but the weakened private development work has curbed inflation.
What to expect if:
Consider alternative manufacturers
For prospective projects, evaluate your local market conditions to understand potential shifts that could yield improved budgets.
Understand the constraints of the local utility company
Inflation Proving Tougher to Combat
Continue to evaluate the major power equipment
With the volatility of the MEP trades, consider alternative procurement approaches such as design-build or design-assist, where possible, with qualified MEP contractors. In traditional procurement models, interview local and regional MEP trade subcontractors early to presell your project and develop a purchasing plan that reflects the input of these key trades.
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Steve Stouthamer
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Consider alternative manufacturers or temporary solutions for power needs to abate lead time issues.
Consider alternative procurement approaches
Evaluate your local market conditions
Stable or increasing interest rates would likely slow project development, causing construction escalation to remain stable or flatten further. As previously reported, we do not expect any significant periods of decline in construction pricing levels.
Reductions in interest levels would likely increase spending and put sellers of goods and services in the driver's seat. Construction escalation could begin to climb, but not likely to the double-digit levels we saw post-pandemic. However, project costs would be impacted.
2. Interest rates increase or stay stable - would likely slow project development, causing construction escalation to remain stable or flatten further. We do not expect any significant periods of decline in construction pricing levels.
1. Interest levels decrease - would likely increase spending, creating a seller's market. Construction escalation could begin to climb, but not likely to the double-digit levels we saw post-pandemic. However, project costs would be impacted.
1. Interest levels decrease - would likely increase spending, creating a seller's market. Construction escalation could begin to climb, but not likely to the double-digit levels we saw post-pandemic. However, project costs would be impacted. 2. Interest rates increase or stay stable - would likely slow project development, causing construction escalation to remain stable or flatten further. We do not expect any significant periods of decline in construction pricing levels.
Spring 2024 Construction Pricing Snapshot
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Materials and Commodities
Industry Indices
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13,498
Current Construction Cost Index
8,256
Building Cost Index
+0.09%
1-Month change
+0.2%
Construction Cost Indices
Source: Engineering News-Record Data as of April 2024
Materials Index
Source: Engineering News-Record Data as of June 2023
Spending
U.S. Employment
Architecture
Unemployment
Click an index or material to view details
Source: Engineering News-Record Data as of August 2023
Source: U.S. Bureau of Labor Statistics All data as of April 2024
Hover over the chart to see exact figures
According to the U.S. Bureau of Labor Statistics, the unemployment rate increased to 3.9 percent, a relatively insignificant increase, as of April 2024. The addition of 175,000 jobs in April is less than expected and likely signals a slower pace of hiring through the spring and summer of 2024.
U.S. Unemployment
Source: U.S. Census Bureau and Dodge Data & Analytics Construction spending data for February 2024 and Dodge Momentum data is from March 2024
The annual rate of construction spending has essentially remained flat, both on a month-over-month and 12-month rolling basis for March 2024 at $2,083.9 billion. The Dodge Momentum Index remains subdued compared to 2023, leading Dodge Construction Network chief economist Richard Branch to note ”that the “construction sector has hit a soft patch to start 2024.
Construction Spending and Dodge Momentum Index
Source: Engineering News-Record All data as of April 2024
Skilled Labor Index and Common Labor Index
The ENR Skilled Labor Index, which generally trends at an annual increase level between 2-4 percent, was nearly flat for the 12 months ending May 1. The Common Labor Index, however, rose at consistent annual levels. ENR does not reflect technical skilled crafts (i.e., electricians and mechanics), which have been under extreme pressure to meet demands in high-tech sectors such as mission critical/data centers, semiconductor manufacturing and EV manufacturing.
Skilled Labor and Common Labor Indices
Source: AIA, All data as of March 2024
This Architecture Billings Index (ABI) demonstrates whether or not architectural firms are billing for or signing new design contracts. The construction industry feels the impact of this index with a 9-to-12-month lag time.
The March 2024 ABI marked the 14th consecutive month where the billings index is under 50 for architecture firms. Billings declined in all regions of the country and at firms of all specializations. As inflation, supply chain issues and economic challenges impact businesses, nearly half of firm leaders noted that negotiating project design fees is more challenging than ever. The value of new, signed design contracts remained flat, similar to the past year and a half.
December ABI Report
Architecture Billings Index
Fuels and Natural Gas
Structural Steel Inputs
Concrete and Cement
Drywall, Gypsum and Insulation
Asphalt
Lumber and Wood
Piping
Metals
Source: U.S. Energy Information Administration All data as of April 2024
Source: Engineering News-Record and U.S. Bureau of Labor and Statistics Producer Price Index, Drywall and Insulation data as of April 2024, Gypsum data as of March 2024
Source: Steel Benchmarker All data as of April 2024
Source: Engineering News-Record and U.S. Bureau of Labor and Statistics Producer Price Index PG 58 data as of May 2024 WPU058102 data as of April 2024
As temperatures increase, a reduction in heating needs causes natural gas prices to subside. However, increased consumer travel during warmer months creates higher demand and pricing in fuel costs. Uncertainty in the Mideast, which has contributed to a 16 percent quarterly increase in the price of crude oil, further impacts fuel prices.
Seasonal adjustments tend to provide more extensive month-over-month swings in the PPI Indexes (WPU058102), whereas the PG 58 price tends to follow actual demand more closely, making it the more valuable measure for near-term construction estimation.
Overall steel pricing is down over the last 12 month period. There has been some recent volatility in rolled steel, causing stud manufacturers to announce increases earlier this year, however, those increases are now rolling back.
Source: Engineering News-Record All data as of March 2024
4000 PSI Concrete pricing is up significantly over the last 12 months. Major drivers include the cost of diesel fuel, labor and raw materials.
PVC: PVC pipe prices remain relatively flat due to soft residential demand and lower resin costs. Copper: Strong demand for copper and copper pipe is increasing pipe prices. Ductile Iron: While the 12 month trend is up 15%, recent lower steel pricing has helped stabilize the quarterly trend. Copper: Strong demand for copper and copper pipe is increasing pipe prices. Steel: Raw steel price volatility and strong pipe demand have pushed prices up.
Source: U.S. Bureau of Labor and Statistics Producer Price Index All data as of March 2024
Lumber pricing continues to bounce around at the bottom of the market. A spring rebound in pricing has yet to materialize. Key factors keeping lumber pricing low are oversupply from mills and a slower than normal housing market.
Source: Engineering News-Record and U.S. Bureau of Labor and Statistics Producer Price Index Plywood and 2x4 S4S data as of April 2024 Lumber and Plywoo4d data as of March 2024
Copper is at an all-time high as mine closures have limited supply, and demand remains strong. The data to the right is historical and does not reflect the current surge. Pricing for aluminum, zinc, copper and nickel surged due to supply uncertainty and continued demand. Aluminum prices have increased due to sanctions being placed on Russian-produced metals.
Source: Kitco All data as of May 2024
Scoring
-50: decrease in volume =50: neutral 50+: increase in volume
The ENR Materials Index continues to cool and distance itself from the significant year-over-year inflation experienced in 2021 and 2022. Similar to the BCI and CCI, the Materials Index does not include the mechanical and electrical equipment cost impacts that have driven project costs higher than traditional measures of construction inflation.
Both of ENR’s core construction indices have remained below the 3-3.5 percent historical, annualized escalation trend for the past 12 months The cautionary reminder is that regional locations are experiencing inflation differently based on volume of work. Additionally, MEP system costs, which are not incorporated in the ENR indexes, continue to escalate more rapidly than other building systems.
Drywall pricing is up 16% over the last 12 months, with a 5-6% increase in the most recent quarter. Drywall manufacturers tried to push through a much larger increase in the recent quarter but if was rejected by the market. While insulation pricing levels have remained stable, lead times for mineral wool insulation continue to be elevated and should be expected at 5-8 months for the remainder of 2024.
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+2.0%
6-Month change
+2.5%
1-Year change
+17.0%
3-Year change
+3.2%
+3.7%
+30.1%
Labor
Use this slider to modify the timeframe of the data shown on the graph. Click on the graph for specific pricing data points.
Might Change
Forecasting Local 2024 Construction Costs
This map reflects local USA Building Project Planning Services team leaders’ opinions of market volume and capacity and is not based on published analytics or third-party forecasts.
Click the map pins to see forecast details for a specific city or region.
Miami/Ft. Lauderdale
Seattle
Portland
Orlando
Tampa
New Jersey
New York
Boston
Connecticut
Phoenix
Philadelphia
Washington D.C.
North Carolina/ Virginia
Cincinnati
Atlanta
Nashville
Houston
Dallas
San Antonio
Los Angeles
San Francisco
Boston/New England
The global market remains unstable due to factors such as the recession in China, conflicts in the Middle East and Asia, the upcoming U.S. elections and the sluggish reoccupation of offices. These elements have led investors to exercise caution. The Federal Reserve's persistence in maintaining high interest rates is causing a downturn in construction initiations in multi-family residences and commercial life science spaces. This situation can be observed through the surge of office spaces and laboratories available for rent in both primary and secondary markets. Private firms aiming to use their capital to exploit local market declines are encountering increased competition from subcontractors. Despite these challenges, private pharmaceutical firms continue to invest in manufacturing. Market amalgamation and market share rivalry are propelling local healthcare spending. It's anticipated that the healthcare sector will sustain this level of expenditure over the next few years, with significant projects currently undergoing approval processes.
Want to discuss the local market position and forecast? Connect with Matt Impastato, Vice President of Preconstruction, Boston.
Spring thaw continues in local Boston market
Local Construction Cost Forecast
Next 6 months
6 months - 1 year
1 - 2 years
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Market is experiencing significant construction price inflation (+5% per annum)
Market is stable and construction pricing/ inflation is less than 3% per annum
Market is recessed and construction pricing/inflation is flat or negative
Construction price inflation is expected to be above normal (3-5% per annum)
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Miami/ Ft. Lauderdale
N. Carolina/ Virginia
Atlanta, GA
The labor market in Atlanta is experiencing increased stress due to a shift from conventional commercial corporate, higher education, and healthcare sectors towards more future-oriented industries such as mission-critical operations, technology, and manufacturing/distribution/warehousing. The growth in these areas is creating additional strain on the availability of skilled labor. Consequently, strategic scheduling of project initiation will be essential for successfully securing subcontractor involvement. While civil, structural and architectural costs are starting to even out, mechanical and electrical equipment continues to experience extended lead times and rising costs.
Continuing shift in market sectors adds to ongoing labor pressure
Want to discuss the local market position and forecast? Connect with Dane Wooley, Preconstruction Director in Atlanta.
Market is stable and construction pricing/ inflation is within traditional indices (less than 3% per annum)
Market is experiencing significant/ abnormal construction price inflation (+5% per annum)
Cincinnati, OH
Cincinnati's local construction industry is set to experience sustained stress due to the continuous initiation and progression of substantial projects spanning a variety of sectors, including Higher Education (UC, NKY), K-12 (Kings Local), Corporate Commercial (Medpace, West End Mixed-Use Development), Entertainment (CSO Performance Center and Convention Center), Healthcare (St. E Dearborn Replacement Hospital) and Hospitality (Convention Center Hotel). Furthermore, regional initiatives such as chip manufacturing, data centers, and electrification are anticipated to exacerbate the speed at which construction costs escalate. Although we've seen a period of relief in construction cost escalation for nearly a year, this trend will likely reverse as these major projects come online.
Substantial number of projects gearing up to commence
Want to discuss the local market position and forecast? Connect with Jeff Smoker, Vice President of Preconstruction in Cincinnati.
Dallas, TX
While major Texan metropolitan regions such as Austin and Houston are beginning to witness a downturn, the market in North Texas continues its robust performance. The healthcare sector is spearheading this surge with projects like the $5 billion research campus being planned for the Southwestern Medical District, along with a 5 million GSF pediatric hospital. Concurrently, in the mixed-use market sector, development is underway for the Preston Harbor project—a $6 billion venture spanning 3,000 acres. Considerable growth is being seen in the mission-critical sector with developments like a $600 million project for Aligned Data Centers LLC., solidifying North Texas's position as one of the largest data center markets in the nation.
North Texas market an oasis of growth
Want to discuss the local market position and forecast? Connect with Linh Le, Vice President of Preconstruction in Texas.
Washington, D.C.
The D.C. government and the Washington Wizards and Washington Capitals have reached an agreement to maintain their sports venue in the District of Columbia, where the teams are currently based. This arrangement involves a $515 million investment from D.C. to upgrade the existing arena and enhance the neighboring area. D.C. and nearby jurisdictions are prioritizing transformative investments in education, healthcare and public safety sectors. Empty office buildings are being examined for conversion into multifamily residences or lab spaces. Local incentives are being introduced to stimulate the revival of downtown zones. The performance across various market sectors varies; higher education, K-12, healthcare, and data centers continue to thrive, while commercial office spaces and multifamily housing lag. Despite high demand for multifamily units, construction starts remain low due to elevated interest rates. Early electrical and mechanical equipment procurement is still advised due to extended lead times.
Local government investments spark construction projects
Want to discuss the local market position and forecast? Connect with Tom Strawbridge, Preconstruction Director in Washington, D.C.
Houston, TX
In the local Houston market, while sectors such as commercial development, mixed-use and oil and gas are experiencing a slowdown, the healthcare sector continues to thrive. MD Anderson (MDACC) is set to launch a CMAR project valued at $2 billion in May. Memorial Hermann has outlined plans for two new bed towers in Cypress and Sugarland, which are estimated to cost $200-$300 million each. Houston Methodist plans to establish community clinics and medical office buildings in Sugarland and the Woodlands area. Concurrently, Harris Health System is executing multiple projects totaling around $1.4 billion, which include the Compound Pharmacy, LBJ Renovations, Ben Taub Hospital Renovation and Expansion, and Outpatient Centers.
Healthcare still going strong
Los Angeles, CA
The regional Los Angeles aviation sector remains a source of opportunities and projects. LAX and BUR airports are consistently focusing on expansion and renovation, with an increased activity at regional airports projected for the next two years. The healthcare market in the region presents a mixed picture. Initiation of larger patient towers has been delayed, but there is a surge in renovations of existing facilities and modifications for more outpatient services. Over the past year, life science and commercial development have seen a downturn with little hope for improvement, considering the ongoing inflation and high interest rates. The demand for mid-size and larger projects within the commercial market is minimal. Material costs have stabilized or slightly decreased, though some upward adjustments are still anticipated for MEP costs. In union areas, labor costs are expected to undergo their usual annual increases over the summer.
Aviation thrives amid mixed healthcare, commercial trends
Want to discuss the local market position and forecast? Connect with Alan Dunbar, Senior Vice President, Preconstruction.
The construction industry in South Florida, particularly Miami, is seeing considerable expansion. While other areas grapple with rising commercial office vacancies, Miami is set to host several major office developments. Both residential and commercial properties are highly sought after in the region. Despite ongoing challenges with electrical and mechanical equipment, as well as skilled labor shortages, material availability appears to be balancing out. Many supply chains have managed to revert to pre-COVID lead times, and despite enduring high costs, the pace of price increases is normalizing. Institutions of higher education are focusing on enhancing their student housing facilities alongside healthcare-related buildings like nursing programs and dental schools. Medical institutions are investing in either expanding or renovating existing Graduate Medical Training Centers while also establishing more Freestanding Emergency Departments within local communities. Universities such as New York University and Northwestern are developing ambulatory care centers. In line with this trend, county and city governments like those of Miami Dade County and Broward County are planning new administrative buildings or similar projects.
Stabilizing resources amid continued market growth
Want to discuss the local market position and forecast? Connect with Walt Chislak, Preconstruction Manager in South Florida.
Nashville, TN
There's a continued positive population and job growth trend in middle Tennessee, with the Tennessean reporting an increase of 86 people per day in 2023. This has helped maintain stability in the construction industry. However, the future of private development projects is still up in the air due to persistently high interest rates and limitations on bank commercial real estate/construction financing. Despite these challenges, certain residential and hospitality projects are progressing by using unconventional financing structures. Nashville's approval of the new Titan's Football Stadium suggests that infrastructure and adjacent commercial construction activities will continue to buoy the vibrant construction scene. Subcontractors are experiencing growth in capacity and availability as their backlog decreases, resulting in stable pricing and enhanced bid coverage. The majority of Nashville's construction markets have reached a balanced and sustainable rate, although urban high-rise multi-family residential projects are still slow with only a few large active projects underway. Meanwhile, suburban low-rise wood-framed multi-family residential markets have begun to show signs of slowing down.
Nashville's construction market is normalizing and stable
Want to discuss the local market position and forecast? Connect with Adam Hicks, Vice President of Preconstruction in Nashville.
North Carolina/Virginia
The NC/VA regional market maintains a robust outlook. Significant projects and a dynamic public sector pipeline are propelling high levels of construction activity. Although sectors driven by developers are experiencing slower progress, the prospect of future interest rate decreases offers grounds for optimism. The public sector continues to prioritize infrastructure support projects to meet the demands of the expanding housing market, K-12 education and public safety. The mission-critical, pharmaceutical, and advanced manufacturing industries continue to grow, causing capacity shortages and inflation in the Mechanical, Electrical and Plumbing (MEP) trades. However, costs within Civil, Structural and Architectural (CSA) trades have largely stabilized.
Optimistic projections drive industry dynamics
Want to discuss the local market position and forecast? Connect with Will Senner, Vice President of Preconstruction in North Carolina and Virginia.
New Jersey’s construction sector remains strong with capital expenditure surpassing $26 billion. The slowing of inflation creates optimism for a reduction in interest rates. Skilled worker shortages increase labor costs 3-6 percent while material shortages add 2-3 percent, resulting in an overall escalation of 4 percent. Material leads times have decreased 20 percent, a trend the State aims to take advantage of by investing $7.5 billion in public utility improvements. Amtrak and NJ Transit plan $16 billion on transportation projects, while NJDOT has allocated $2 billion for roads/bridges. Corporate commercial is trending towards high-quality spaces near transit hubs like Morristown and Summit. With return-to-work, there's a shift towards downsizing and upgrading existing offices; conversely, new construction activity is at its lowest in two-and-a-half years. Life science capitalizes on vacant office spaces by converting these into laboratories. Cellares is expanding its footprint and Avantor undertook significant transformation efforts in Bridgewater. Slated for completion later this year is BeiGene's lab, which spans 400,000-SF at Princeton West Innovation Campus.
New Jersey taking advantage of normalizing escalation and shrinking lead times
Want to discuss the local market position and forecast? Connect with Nick Culver, Vice President of Preconstruction in New Jersey.
New York, NY
In New York, healthcare organizations are stepping up their procurement endeavors, offering numerous new opportunities in the market. These institutions are prioritizing increased investment in infrastructure to modernize their establishments. Presently, Northwell Health is acquiring Nuvance Healthcare, which encompasses hospitals Upstate and in Connecticut, with the acquisition expected to conclude by 2024's end. The life sciences field has ongoing projects, especially in the Metro Region, through 2024. However, developer-driven life sciences projects are experiencing a slowdown due to increasing interest rates and challenges in securing tenants. The commercial office sector also sees a slowdown marked by low tenant occupancy rates. The residential sector is similarly affected by rising interest rates. However, the newly passed successor program to the 421a investment tax abatement program, now referred to as 485x, anticipates renewed activity in affordable housing soon. The transportation and infrastructure sectors demonstrated marked advancement this quarter with significant projects like Hudson River tunnel refurbishments and Midtown Bus Terminal replacement moving ahead, among others. Recently initiated projects within cultural institutions and other public domains promise fresh activities extending into Q2 2024.
New York's evolving market landscape
Want to discuss the local market position and forecast? Connect with John Tamborino, Vice President of Preconstruction in New York.
Orlando, FL
In the past few months, we've noticed a downward trend in the rising costs of construction materials, including those annual bumps usually expected at the start of each year. Interestingly, costs for steel materials have even dipped below last year's peak levels. In Orlando's market, competition is heating up due to several major projects nearing their completion stages, like Universal's multi-billion dollar new park. However, despite such favorable economic conditions for our customers, there's still a persistent shortage of skilled craftsmen. This has resulted in cost escalation that exceeds the usual rates in the construction sector. The Orlando Economic Partnership—a local agency dedicated to promoting economic prosperity within its community—reports that Orlando is currently welcoming around 1,000 new residents daily. This population surge is putting pressure on the local infrastructure and causing a scarcity in housing options. Consequently, this has increased the demand for constructing new healthcare facilities, retail outlets and educational institutions. The rapid growth observed over recent years shows no signs of slowing anytime soon.
Orlando's population boom creates opportunities
Want to discuss the local market position and forecast? Connect with Tom Stickrod, Vice President of Preconstruction in Orlando.
Philadelphia, PA
The Philadelphia market continues to be dominated by Life Science projects, complemented by a fresh emphasis on much-needed Mission Critical projects. We're noticing an uptick in MEP infrastructure projects as owners invest in crucial repairs and upgrades for their existing properties. Preconstruction activities are notably vibrant with various healthcare institutions like Main Line Health, Thomas Jefferson University Health, Penn Medicine, Inspira, Cooper Health and CHOP. In the Higher Education sector, entities such as Penn, Temple, and Drexel Universities are focusing on their capital projects and conducting extensive feasibility studies within the region. Projects related to residential halls, additions focused on STEM subjects, and new building structures are in the pipeline across numerous colleges and universities. Furthermore, mixed-use developments are becoming increasingly popular as they blend residential, commercial and retail components within a single development.
Life Science Leads the Way, but Activity in all sectors
Want to discuss the local market position and forecast? Connect with James Lane, Vice President of Preconstruction in Philadelphia.
Phoenix, AZ
Phoenix maintains its position as the leading growth market for manufacturing construction in the U.S. This growth is primarily driven by industries such as semiconductors, electric vehicles and solar energy. Significant investments have been made recently into facilities like Taiwan Semiconductor Manufacturing Co. and Intel, with funding of $6.6 billion and $8 billion respectively, provided by the CHIPS Act. However, this robust market growth has resulted in a shortage of skilled trade labor, particularly within the electrical and mechanical sectors of the labor force.
Phoenix still leading growth market for manufacturing construction in the U.S.
Want to discuss the local market position and forecast? Connect with Tom Feeney, Vice President of Preconstruction in Phoenix.
Portland, OR
While office and multi-family markets have crawled to a standstill, a substantial influx of forthcoming projects in prominent sectors such as K-12, Healthcare, Datacenter and High Tech remain. The CHIPS Act is commencing to channel funding into the semiconductor market, with an increasing number of infrastructure projects that could potentially impact our vertical building market. School bonds are up for vote, and the results from November will serve as a crucial marker for prospective school projects.
Increasing Competition in a Tighter Market
Want to discuss the local market position and forecast? Connect with Steve Clem, Senior Vice President of Preconstruction in Portland.
San Antonio, TX
In Texas, various sectors are putting their resources into convention spaces with San Antonio contemplating a substantial expansion to keep up with the competition. Investments in downtown areas persist, comprising Alamo Plaza's ongoing renovation and horizontal and vertical development projects related to the 2025 NCAA Final Four. In recent news, UTSA has disclosed that the Institute of Texan Cultures (ITC) will be relocated to a new facility, while the current property at Hemisfair will be demolished. This invaluable site could pave the way for several significant future developments – including new sports stadiums. Port San Antonio is committed to an ambitious long-term growth strategy focusing on technology and cybersecurity. We are continually monitoring current and future market possibilities. While we don't closely monitor the industrial sector, it's gaining momentum with new corporate headquarters, which are bringing opportunities and workforce to the region. The local workforce is steady, can handle regional projects efficiently, and prices remain stable. Strategies for managing long lead items continue to be a vital part of procurement planning.
Workforce steady and future developments yield opportunity
Want to discuss the local market position and forecast? Connect with Chris Hillyer, Senior Vice President of Preconstruction in San Antonio.
San Francisco, CA
The San Francisco International Airport is steadily advancing its strategic five-year plan—Terminal 3 West enablement projects—setting the stage for a comprehensive modernization of T3. In tandem, design-build efforts for the redevelopment of SFO West Field have begun, with the demolition of several old buildings making way for multiple cargo hangars and an additional parking garage. Healthcare growth in the Bay area continues, with most new projects involving small to midsize renovations and a few larger-scale adaptations of existing buildings for medical office use. Conversely, life science and commercial development have seen a downturn due to ongoing inflation and high interest rates, with no signs of imminent recovery. Bio and tech companies continue downsizing their operations, but there are indications that this trend may slow or even reverse within the next six months. The less costly regions, such as Sacramento, are experiencing growth as companies move away from the more expensive Bay Area. Regarding construction trades, prices remain relatively stable, although some escalation is still anticipated, particularly for mechanical, electrical and plumbing (MEP) work. Labor costs in unionized areas are expected to continue rising, with normal annual increases anticipated over summer.
San Francisco's strategic progress picking up speed
Seattle, WA
In Seattle, certain market sectors are experiencing a sluggish pace but are striving to progress. The residential sector continues to contract as ongoing projects conclude and new ones are postponed or put on hold for potential future commencement. With the continuing challenge of returning employees to full-time work, the surplus of commercial office space further dampens growth in that sector. However, mirroring last quarter's trends, several markets still show positive momentum. The K-12 market remains robust as community bonds pass and projects advance. Healthcare providers continue to explore expansion plans in response to increasing patient care demand and funding acquisition. The burgeoning expansion of AI is spurring mission-critical projects into construction, predominantly on the east side of the mountains. The aviation industry shows positive movement as the Port of Seattle persists in its efforts to expand operations. Higher education is slower-moving, with only smaller projects entering the market; universities are examining future renovation and expansion plans as enrollment numbers rise.
Market Sectors Resilient and Making Progress
Want to discuss the local market position and forecast? Connect with Dan Curtiss, Vice President of Preconstruction in Seattle.
Tampa, FL
The construction industry in Tampa is demonstrating strong job growth, ranking among the most robust nationwide. The multifamily residential sector, in particular, has not shown any signs of deceleration. However, this expansion puts pressure on the already strained availability of skilled trade workers and escalates labor costs for professions such as HVAC, plumbing and, notably, electrical trades. Although certain local material supplies face continued difficulties, overall supply-related issues have found stability. Wait times for mechanical equipment like RTUs, AHUs, and chillers have steadied. However, extended delivery times persist for electrical equipment—specifically switchboards and switchgear—with no easing in sight.
Job Growth in Construction Remains One of the Strongest in the Country
Want to discuss the local market position and forecast? Connect with Jeff Courtney, Preconstruction Manager in Tampa.
Want to discuss the local market position and forecast? Connect with Stephen Hattwick, Preconstruction Director in San Francisco.
Design Sentiment
Don’t miss the new design sentiment section to see what our leaders had to say about the industry’s top concerns.
See a summary of our market sector performance and local escalation forecast below.
Market Sector Overview
Local Escalation Forecast
Market is experiencing and/or is expected to experience significant/ abnormal construction price inflation (+5% per annum)
Market is busy and construction price inflation is/is expected to be above normal (between 3 and 5% per annum)
Market is stable and construction pricing / inflation is within traditional indices (less than 3% per annum)
Market is recessed and construction pricing / inflation is flat or negative
Market Sector is very busy with numerous large active projects either in Preconstruction or Construction
Market Sector is stable with some large active projects either in Preconstruction or Construction
Market Sector is slow with few large active projects either in Preconstruction or Construction
Skanska is not tracking this sector closely enough in our regional market to comment
Key
Market Sector Forecast
Cost Escalation Forecast
Market sector summary
Local escalation summary
K-12
Science + Tech
Aviation
Higher Education
Healthcare
Offices
Distribution/ Warehouse
Manufacturing
Mission Critical
Corporate Commercial/ Office
Transportation/ Infrastructure
Supply Chain Trends and Insights
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About Skanska's Strategic Supply Chain (SSC) Team: Skanska’s SSC team leverages established relationships with major equipment and building material manufacturers to bring best value solutions to our projects and clients. Our direct relationships give us insight into the major supply chains feeding into the construction market.
The construction supply chain improved over the past three months as manufacturers increased capacity and some construction segments slowed. Rising interest rates and market uncertainty in certain geographical markets prevented some developer-led projects from moving forward, primarily privately funded commercial office and residential projects. However, lower demand in these segments is being replaced by stronger demand in others. The most challenging construction supply chain category continues to be electrical gear. To understand this demand, looking back at the top five vertical markets from 5–10 years ago compared to today is helpful. Previously, the top five vertical markets were Oil, Gas and Chemical, Healthcare, Multifamily Residential, Water and Wastewater, and Data Centers. Today, the top five vertical markets are Electric Vehicles, Healthcare, Multifamily Residential, Semiconductor Manufacturing, and Data Centers. One of these new markets, Electric Vehicles, barely existed ten years ago, and Data Centers have exploded far beyond what most could have imagined. This major shift began years ago but has been accelerated by the way we live and work post-COVID and by net zero carbon goals. These trends have one thing in common: demand for electrical gear. Data Center demand is the leading consumer of electrical gear capacity and shows no sign of slowing down. On the capacity side of the equation, the four major electrical gear manufacturers have doubled unit capacity after investing billions of dollars in new plants and equipment. However, demand is expected to grow and consume this new capacity as quickly as it is added. All major manufacturers forecast lead times greater than one year for the next several years, with price increases averaging 8-15 percent annually.
Contact Tom
Vice President of Strategic Supply Chain
Tom Park
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Director of Strategic Supply Chain
Robert Cantando
Logistics
Electrical Gear
Roofing Products
Structural Steel
Architectural Interiors
Doors and Hardware
Lab Casework and Fume Hoods
Appliances
Elevators, escalators, moving walks
Transportation
Plumbing and Fixtures
HVAC Equipment
Building Control systems
Electrical commodity Materials
Generators
High Purity Process PVF
Current Lead Time and Price Forecast
Lead times described are after fully approved submittals and factory accepted release
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Status Key
Stable/Consistent
Trending Down
Fluctuating
Trending Up
Trending Up Significantly
The Logistics Managers Index (LMI) tracks key metrics—such as transportation, warehousing and inventory data —and is collected monthly from industry professionals. A value of less than 50 indicates a contracting market and above 50 indicates a growing market. The LMI for December was 54.6. This is up slightly from November’s reading, which indicates that growth is increasing.
Roofing material manufacturers have inventory. Lead times for most items are in the 3-4 week range depending on quantities needed. Pricing is stable. We expect these trends to continue through at least the first half of 2024.
Lead Time
Current Status:
Price
6-12 Month Forecast:
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Structural steel pricing remains stable. Pricing of Hot Rolled Coil (HRC) is volatile, leading to fluctuations in Hollow Structural Section (HSS) pricing.
Availability and pricing of drywall continue to be stable. Manufacturers announced significant increases at the start of the year; however, the market experienced a much more modest increase of 5-7 percent. In response to coil steel price increases, metal stud producers announced 10 percent increases in December, January and February. However, coil steel pricing has dropped and some increases have reversed. As of April 19, coil steel pricing is 30 percent below its peak in December.
Ceilings, drywall, metal studs, flooring, paint, etc.
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Lumber pricing remains stable. Housing starts have been sluggish, coming in lower than expected, at 1.32 million for March.
Wood-based Building Materials
Lab casework lead times are still at the standard range of 8-12 weeks and should remain stable in the near term. Most manufacturers have healthy inventory positions. The recent drop in coil steel pricing should keep lab casework pricing in check.
Appliance manufacturers have corrected lingering supply chain challenges. Lead times and pricing are back to normal levels and stable.
The overall market for elevators remains slow due to fewer commercial office and residential projects. Lack of demand has improved lead times and competitive project pricing. While there may be some cost increases on material and labor, general price increases are expected to be minimal in 2024. • Low-rise elevators range from 10-20 weeks • Mid-rise elevators range from 20-24 weeks • High-rise elevators range from 40-46 weeks • Escalators range from 18-24 weeks
Elevators, Escalators, Moving Walks
While lead-times for fixtures, pipe, valves and fitting are generally stable, many manufacturers have increased prices 5-7 percent this year (five times the number in the last quarter). Certain below-grade hydronic pipe lead-times of up to 9 months continue. Below-grade piping requirements should be investigated for availability as soon as possible in the construction schedule.
Over the past three months, lead times have improved or stabilized across most manufacturers and categories of equipment. Fewer late deliveries have occurred in comparison to the previous quarter, indicating most manufacturers are overcoming or mitigating supply chain challenges. Despite strong data center demand, the most significant improvement in lead times is air cooled chillers, now ranging 25-35 weeks. Water-cooled chillers are stable between 12-25 weeks, and custom and semi-custom air handler lead times are holding steady between 10-30 weeks, depending on the manufacturer. As predicted, we are seeing a 2024 price increase of 3-5 percent.
While a global shortage of semiconductors is affecting several industries, the impact on building controls has been minimal due to mitigation efforts by controller manufacturers. Prices and lead time for materials are expected to increase moderately, however installation labor will continue to dominate price and lead time in this category.
Building Control Systems
Electrical gear lead times from all major manufacturers remain high but significantly lower than a year ago. Lead times vary greatly depending on the specific manufacturer and complexity of the equipment. For example, complex switchboards range from 30-70 weeks. Low-voltage switchgear ranges 50-80 weeks, and medium-voltage switchgear ranges 52-95 weeks. Liquid-filled, pad-mounted transformer lead times have increased to 100-120 weeks due to utility company demand. We recommend including electrical gear in early-release bid packages to meet overall construction schedules. Price increases in 2024 will be 8-15 percent as expected.
Lead times for most commodity electrical items have stabilized. However, strong demand and inflation continue to increase the prices of raw materials for copper and steel. We should expect prices to increase 3-6 percent over the next 6-12 months.
Electrical Commodity Materials
Little has changed over the past three months. Manufacturers are still experiencing high demand for all genset sizes. Lead times for generators smaller than 1MW remain in the 45-75 week range. However, data center demand for large, above-1MW-sized generators is pushing lead times to two or more years. Custom enclosures add additional lead time to all generator sizes. Price increases are on track to rise 10–15 percent this year.
Based on slowing consumer demand and resolution of congestion at U.S. ports, shipping container activity will fully recover to “normal” levels in 2023 and container costs are now at pre-pandemic levels.
Door hardware and hollow metal door lead times remain in the 7-10 week range. We expect this stability throughout 2024. We recommend continued close monitoring of lead times for electronic access control materials.
Due to strong demand in life sciences, healthcare and the semiconductor markets, pricing and lead times continue to increase. While it varies depending on the material/equipment, the trend is still moving up across the board. Lead times for A269 SMLS Tube is running 24-26 weeks from the mills.
High Purity Process Pipe, Valves and Fittings (PVF)
The Logistics Managers Index (LMI) tracks key metrics, such as transportation, warehousing and inventory data collected monthly from industry professionals. A value less than 50 indicates a contracting market and above 50 a growing market.
Kez Gneiting
National Supply Chain Manager
Contact Kez
Rob Cantando
LT: Lead Time | $: Price
LT
$
Continue early release procurement of mechanical and electrical equipment packages Obtain confirmed factory releases in writing from manufacturers Follow up regularly with manufacturers to confirm deliveries
Top planning considerations:
1
2
3
Top planning considerations
Continue early release procurement of mechanical and electrical equipment packages
Obtain confirmed factory releases in writing from manufacturers
Follow up regularly with manufacturers to confirm deliveries
All eyes on the Port of Baltimore: The port handles just 4 percent of all container volume and 9 percent of all tonnage on the East Coast, with automobile and construction/farm equipment being the largest. Construction materials volumes are relatively small and can be redirected to other ports. To assess the closure’s impact on construction supply chains, our team interviewed a variety of suppliers. The feedback was consistent— outside of increased over-the-road transportation times, no significant impact is anticipated. We will continue monitoring the situation and share updates in future reports. Looking more granularly into specific supply chains, we find the current status is much the same as our last report: HVAC and electrical gear lead times remain elevated but continue to improve. HVAC equipment escalation is expected to slow to the traditional three-five percent range. The unprecedented pressure continues on certain electrical gear, standby generators/enclosures and air-cooled chiller manufacturers. Additionally, copper is at an all-time high due to strong demand, mine closures limiting supply and a unique commodity trading scenario in which two traders were caught short supplying physical copper to the U.S. We expect prices to rise into early June. Supply chains for concrete, structural, and architectural categories are stable with pre-pandemic lead times and flat pricing with some exceptions. Coil steel pricing, affecting construction supply chains like metal studs and drywall grids, has been volatile; from $700/ton in September to $1,135/ton in January, then down to $808/ton in April. Metal stud prices have returned to normal with a small 5-7 percent increase after escalations in the beginning of the year. Extended lead times continue for mineral wool insulation, now at 32 weeks or more, and are expected to continue throughout 2024.
Key Takeaways
The most challenging construction supply chain category continues to be electrical gear
Major electrical gear manufacturers are investing in new plants and equipment
Electrical gear price increases averaging 8-15 percent annually
Click to see our top planning considerations
Top Planning Considerations
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Follow dup regularly with manufacturers to confirm deliveries
Metal Studs and Drywall
insulation
Fiberglass insulation lead times are steady in the 6-12 week range. However, mineral wool insulation supply continues struggling with lead times in the 5-8 month range. We expect these extended lead times to remain throughout 2024. Lead times are extended due to manufacturing disruptions and continued strong demand for mineral wool.
Insulation
Looking more granularly into specific supply chains, we find the current status is much the same as our last report: 1. HVAC and electrical gear lead times remain elevated but continue to improve. 2. HVAC equipment escalation is expected to slow to the traditional three-five percent range. 3. The unprecedented pressure continues on certain electrical gear, standby generators/enclosures and air-cooled chiller manufacturers.
This Construction Market Trends report is developed by Skanska USA Building’s Project Planning, Strategic Supply Chain and Strategy teams. We publish the report quarterly, each February, June, August and November, with an accompanying Market Trends webinar. Historical quarterly reports can be found below. Sign up to be notified of the webinar and report release here.
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Stay prepared to respond to changes....Construction escalation forecast report and analysis for key U.S. locations and materials developed by Skanska USA Building's Project Planning Group.
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February 2023
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Dean Lewis, P.E., S.E. Executive Vice President, Project Planning
Hardy Wentzel CEO and Founder, Think Mass Timber
Andrea Chiu, P.E., S.E. Building Solutions Specialist
Sarah Vakili Senior Director of Business Planning and Strategy
Paving the Way for Low Carbon Construction The construction industry accounts for approximately 40 percent of global greenhouse gas emissions. We have an opportunity to make a difference—by choosing low carbon emission building materials, we can greatly reduce our impact on climate change. Watch our webinar that explored three such materials—steel, low-carbon concrete and mass timber—and how they can impact climate change and help you achieve your sustainability goals.
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Uncertainty in the world markets with China's recession, wars in the Middle East and Asia, the U.S. election cycle, and slow returns to office all contribute to some hesitation for investors. High interest rates are negatively impacting construction starts in multi-family and commercial life science spaces, as evidenced by the flood of commercial office and lab space for rent on the primary and secondary markets. With this slowdown, many larger private companies want to leverage capital to take advantage of a dip in the local market. This would benefit projects such as private education, aviation, transportation and other market segments where owners can use their capital for investments. The private pharmaceutical market is still seeing spending on manufacturing. Current market consolidation and competition for market share are driving local healthcare spending. The healthcare market should maintain this healthy spending over the next few years, with large-scale projects working through the approval process.
Winter chill settles in for Boston market
Atlanta is beginning to see a shift from the traditional corporate commercial, higher education and healthcare markets to future-ready markets such as mission critical, technology, and manufacturing and distribution/warehousing. The shift adds pressure to a labor market already strained by the rapid pace of several large data center projects underway. The strong growth in the manufacturing and distribution/warehousing sectors adds additional pressure on the skilled labor market. The timing of project starts will be critical to the success of attracting subcontractor participation. The tech sector focused projects have put upward pressure on mechanical and eletrical equipment lead times and costs, but these projects are less complex architecturally and we have seen more stable prices in architectural, civil and structural trades in recent months.
Shift in market sectors adds to labor pressure
The local construction market remains strong, with most market sectors stable or busy. The only significant market sector currently slow is developer-led corporate commercial office space. However, private commercial development has remained strong. While the supply chain issues and large material price escalation have mostly diminished, there is still significant wage escalation pressure. This wage pressure will increase overall construction cost escalation in the Ohio/Kentucky/Indiana region for 6-12 months.
Construction demand remains strong
The DFW Metroplex continues to have opportunities entering 2024. In the aviation market, DFW airport is slated to release a new Terminal F and reconfiguration to the existing Terminal E, with a budget of $4 billion. The City of Dallas is planning an expansion to the Kay Bailey Hutchison Convention Center (KBHCC), with a budget of $3.7 billion. The City of Fort Worth also plans to expand its convention center, with a budget of $400 million. In the healthcare market, several large projects are in the planning stages, including UTSW-Children's replacement hospital with a budget of $2 billion, JPS's new bed tower and pavilion with a budget of $800million, and Terrell State Hospital with a budget of $400 million. In the higher education market, Collin County College District allocated $360 million of work on three campuses. The K-12 market continues to be hot as more people relocate into the area. Prosper ISD approved a new bond worth $2.7 billion to build new schools, a performing arts center and safety and security upgrades to their existing campuses.
With the new year comes new opportunities
Demand for multi-family housing remains strong, but rising costs and interest rates have stalled new construction starts. During this slowdown, some developers explore office-to-apartment conversions for viability, while others with available capital assess purchase opportunities on distressed properties. This slowdown in office and multi-family markets has forced more competition in K-12 and higher education markets from contractors not traditionally active in these markets. In science and tech, the market is generally slow, but we see continued high demand for life science facilities in Maryland. The construction market for data centers in Northern Virginia remains active, expanding to other parts of Virginia and Maryland due to the strain on the power grid in localized markets. Additionally, data center and electrification-related construction are still straining the labor, equipment, and subcontractor resources, specifically in the mechanical and electrical trades. This strain continues to cause steady escalation and increasingly long lead times. We continue recommending early procurement to our clients for mechanical and electrical equipment and using design-assist subcontractors to support these efforts. In most other trades, escalation and lead times have stabilized to traditional levels.
Slowdown in office and multi-family forces increased competition in stable markets
Although Houston has shown a dramatic slowdown in commercial development in both office and mixed-use, other market sectors remain stable and, in some cases, grow. One of these is in healthcare, with Memorial Hermann planning on two new hospital towers for Katy and Clear Lake with a combined budget of $600 million. Harris Health System is underway with their new LBJ replacement hospital with a budget of $1 billion. The University of Texas and MD Anderson Cancer Center are in partnership on a new cancer treatment hub with a budget of $2.5 billion. Another market sector that continues to grow is K-12. Alief ISD approved a bond of $500 million for district-wide improvements. Aldine ISD approved a bond of $1.8 billion to build, renovate, and update safety and security projects throughout their district.
Resilience and growth amidst looming uncertainty
In Los Angeles, signs of slowing have manifested in the commercial building sector, with little to no office starts and subdued activity in retail and hotels. The institutional, multifamily and aviation sectors are proving more resilient and resistant to economic slowdown. An increasing trend of adaptive reuse and renovation projects and the integration of smart building technologies and automation highlight the need for adaptability in the region. A more stable supply chain is a welcome sight, with only a handful of manufactured components still proving problematic. The market continues to face challenges related to a skilled labor shortage, emphasizing the need for workforce development initiatives to attract and retain talent.
During signs of slowing, adaptability is fundamental
Want to discuss the local market position and forecast? Connect with Andy Kim, Preconstruction Manager in Los Angeles.
Miami-Dade and Lee counties are experiencing growth, impacting several market sectors, such as K-12, higher education and healthcare. Despite healthcare funding challenges, services are more important than ever as the population ages and grows. Additionally, some hospital facilities are aging and require upgrades and renovations to meet new building codes and technological advances. After recent events like Hurricane Ian and the 500-year storm that flooded Broward County, FEMA allocated hundreds of millions of dollars to the state to upgrade healthcare facilities. In aviation, increased travel and the prioritized transportation infrastructure improvements have contributed to all three major South Florida airports (MIA, FLL, PBI) looking to spend billions of dollars in recent funding. The same goes for the Ports. Labor demand in South Florida remains elevated. Trade partners report having to pay significantly higher wages to prevent poaching from competitors, including increasing contingencies for maintaining such labor through project completion. Regarding construction materials, most have held their recently stabilized price trends, but some continue escalating, such as concrete ready mix, cast iron piping, and electrical switchgear. Lead times for electrical equipment are still elevated, but the wait for some brands of mechanical equipment is starting to level off.
Strong growth creates competition for trade partners
Nashville remains one of the high-growth cities in the U.S. The population migration trend to our sunbelt city continues to support growth in public and private construction markets even though market uncertainty affects commercial markets. The fate of private development projects, which have fueled much of Nashville’s recent growth, has yet to be seen. We still see some development projects going forward and anticipate the East Bank as the next frontier of both private and public work. Market sectors in middle Tennessee, such as public, infrastructure and higher ed, remain strong. Healthcare, mission-critical, aviation and manufacturing remain stable. The commercial office sector faces high vacancy rates, slowing office development. Urban multifamily developments are facing market saturation and more competitive rental rates. With the slowing of new commercial developments throughout 2023, subcontractor capacity and backlog have increased, resulting in improved bid coverage and more stable/tighter pricing. We anticipate more “normal” escalation rates throughout 2024 as the region and industry monitor economic conditions.
Nashville remains one of the high-growth cities in the U.S.
The region continues to experience high population growth, promising opportunities for the industry, particularly in markets like K-12 and healthcare. In contrast, growth in other areas, including developer office and life science projects, has slowed substantially. Large-scale projects within the mission-critical, pharma, and advanced manufacturing sectors are ongoing, causing a significant resource draw, especially in MEP trades. This resource strain and ongoing equipment cost pressures have contributed to continued cost increases for these trades. Conversely, costs associated with CSA trades have largely stabilized. Despite sector-specific challenges, there's optimism about the overall market health due to a robust pipeline of projects spanning multiple sectors, including advanced manufacturing, revenue-generating healthcare projects, and public work.
Flattening CSA Costs Amid Intense MEP Resource Demands
The Port Authority of New York and New Jersey (PANYNJ) 2026 Capitol Plan includes $32.2 billion for infrastructure improvements, with $2.05 billion going towards a new AirTrain linking the Northeast Corridor (NJ Transit and AMTRAK) to the new EWR Newark Liberty Airport Terminal A and existing Terminal C. The PANYNJ is releasing this project in multiple design-build packages, with the most recent award of $570 million to the Doppelmayr Group out of Austria. In higher education, Princeton University and the Princeton Planning Board will review a concept plan for a new 467,000-SF complex dedicated to Quantum Science and Engineering. “The Quantum Institute” would include three linked buildings on the East Campus near Powers Field at Princeton Stadium, the Tigers’ home football field since 1998. RWJBarnabas Health and its partners currently have more than $1 billion worth of new cancer treatment facilities under construction in healthcare. The largest project—a 12-story, 510,000-SF, $750 million facility—will provide cancer prevention and clinical care services in New Brunswick. Other projects include a five-story, 137,000-SF, $225 million hub for cancer-related services in Livingston and a $200 million outpatient center in Tinton Falls. All three buildings are scheduled to open in 2025.
Infrastructure upgrades, higher ed and healthcare remain strong
In New York, healthcare institutions continue providing new projects for Q4 2023 into Q1 2024. Several institutions look to spend more on infrastructure as they bring their facilities into the 21st century. Healthcare REITs are looking for acquisitions of senior living and assisted living properties. Life sciences projects are still active, with several significant projects in the Metro Region backed by NYC through 2024. However, developer life sciences have slowed as interest rates have risen and developments have had difficulty obtaining tenants. Similarly, the commercial office sector remains slow as tenant rates are at all-time lows. Cultural institutions and other public domain projects have recently come online, providing fresh activity in these sectors through Q2 2024.
Looking forward to a robust year in healthcare and S&T
The competition for labor, specifically those in higher-skilled trades such as electrical, HVAC, and plumbing, has caused dramatic increases in costs for these construction services. Companies who perform these trades weigh risks associated with being unable to perform the work they are contracted to do and are pricing work accordingly. While commodity-driven components have leveled off, wages have increased, and anticipated production has fallen. Coupled with a lack of qualified firms able to perform large projects, the cost for these trades has risen to levels that would have seemed absurd just a year ago. We anticipate market correction, but this does not seem likely in the near future.
Labor shortages continue fueling escalation
Philadelphia welcomes new mayor, Cherelle Parker, this year. With the change in leadership, new initiatives are being introduced to reenergize the market, especially in construction. One of the more significant initiatives is sustainability. Owners are integrating sustainable design into their new projects and balancing the competitive demand for adaptive reuse of older facilities that may need to be revised to present design standards. In healthcare, the outlook for new starts is positive and multiple projects are in the pipeline. There is substantial activity in preconstruction with Main Line Health, Thomas Jefferson University Health, Penn Medicine, Inspira, Cooper and CHOP. In higher education, local universities continue working through new ways of recruiting and educating students in person and virtually. We see residential hall projects, STEM-based additions, and new buildings in the pipeline for all the colleges and universities. Private life science campuses in our region continue developing, and we see many opportunities to support this growth spurt. Additionally, mixed-use developments are gaining traction, with many residential, commercial, and retail developments in the same building.
Healthcare and higher education markets remain strong
Real estate firm Newmark Group recently announced Phoenix as the top growth market for manufacturing construction in the U.S. Most of this construction is currently in the semiconductor, EV and solar industries. One example is the Taiwan Semiconductor Manufacturing Co.'s facility, which is still going strong despite Phase 2 being delayed a year due to finances. Because of this strong market, the availability of skilled trade labor is limited, especially in the electrical and mechanical labor force.
Phoenix named top growth market for manufacturing construction in the U.S
The Portland market is experiencing a similar number of opportunities as compared to last quarter, but contractors are being more selective since competition is increasing. Private development is down substantially, especially in hospitality, senior housing, retail and office markets. The technology sector—data centers and semiconductor manufacturers—continues to power the market. Fees are stable around historical averages. A continued focus on diversity is encouraging partnerships for pursuits.
Opportunity similar to last quarter
"San Antonio continues to experience steady construction growth across multiple sectors. Aviation is strong as construction on the $2 billion San Antonio International Airport (SAT) expansion and renovation will commence later this year. Healthcare and mission critical are stable with large ongoing projects in either preconstruction or construction phases in both sectors. The K-12 sector has billions of dollars of work in progress, and public higher education remains stable. However, the election cycle reduced new bond program opportunities in 2024 and will likely lead to a slight slowdown in these sectors. There is an enhanced focus on downtown growth in San Antonio. There are escalating discussions around the potential for new basketball and baseball sporting venues, which may lead to future construction opportunities. Additionally, San Antonio is home to Joint Base San Antonio (JBSA), which includes four primary military locations with potential upcoming federal opportunities. Subcontractor capacity is improving, leading to improved bid coverage, enhanced competition, and generally more predictable and favorable pricing, especially in the non-mechanical and electrical trades."
Continued growth and increased subcontractor capacity
Aviation continues to thrive across the Bay Area. The most recent estimates suggest that demand for air transport will increase by an average of 4.3 percent per annum over the next 20 years. San Francisco International Airport's strategic plan for the next five years includes completing the Terminal 3 West Modernization Program, which will be mainly self-funded through passenger and retail revenue. Sacramento International Airport has a $1.3 billion garage and gate expansion program. Higher education is also flourishing with increased demand for student housing. The healthcare market is focused on small to midsize renovation projects rather than new construction, and funding for these projects is steady. Life science and commercial development continue to decline due to the low demand for lease space and the high cost of borrowing money. Tech companies are downsizing, putting more sub-lease space on the market and looking for lower-cost regions, such as Sacramento, for possible expansion. Despite softening in some sectors, like commercial office and life science, most local trade subcontractors still report labor challenges. The construction pricing in the greater Bay Area is still seeing escalation, but it is closer to the average pre-pandemic pace of escalation. Equipment lead times for electrical and mechanical continue to be longer than usual.
Aviation leads construction in the Bay Area
Seattle's construction market remains buoyant. Residential is slow, with most projects completed and few projects starting. The commercial office market continues to struggle locally due to oversupply, as Amazon and Microsoft have non-renewed their leases amidst the public safety fears in downtown Seattle. However, strong growth in other sectors has offset this pause in commercial office and residential markets. For example, several providers are beginning to study new patient towers in healthcare. In post-pandemic years, we have seen significant growth in the data center, electrification and battery manufacturing sectors, especially in the Wenatchee market. Manufacturing/industrial and mission critical projects east of the mountains are starting to commence construction on data centers and an electrification manufacturing complex.
Construction market remains buoyant
Tampa's job growth in construction remains one of the strongest in the country. This growth contributes to the continued strain on the availability of qualified trade workers and the increased labor costs for skilled labor in HVAC, plumbing and especially the electrical trade. Though local material supplies remain challenged, overall supply challenges have stabilized. The wait for mechanical equipment, such as RTUs, AHUs, and chillers, has leveled off. However, lead times for electrical equipment, particularly switchboards and switchgear, are still elevated.
Construction market remains strong, labor challenges persist
In Connecticut, the year 2023 continues to match the construction growth of 2022, as reported at less than one percent by the Connecticut State Department of Labor. All patterns from the summer are continuing into the fall—tight competition, slow private money, long lead times on certain components, and subcontractors are still protecting their margins. Despite these continued pressures, we anticipate a return to normal escalation over the next few months to a year.
Fall season not resulting in changing of patterns
Want to discuss the local market position and forecast? Connect with Gina Garcia, Preconstruction Manager in San Francisco.
Local Office Forecasts
Busy
Not tracking
Stable
Slow
Forecast Key
Project Opportunities
Despite economic indicators, 71 percent of those surveyed feel opportunities for new projects over the next six months will either stay about the same or will increase. 23 percent feel opportunities will decrease.
As market conditions shift, we took the pulse of leaders in our organization to understand their sentiments about three important subjects—opportunities for new projects, workforce capacity and supply chain. We surveyed 156 participants in our U.S. locations, with roles including Executive Management, Field Superintendent and other project team members. Below is a summary of their responses.
Workforce Capacity
The labor force is saturated in many locations and projects are observing challenges with trade contractors having the qualified manpower to meet their schedule commitments. Just over half of those responded, particularly central locations (North Texas, Nashville, Cincinnati), northeast (Boston) and southeast (Florida/NC) that there are current challenges with the capacity of trade contractors having qualified manpower to meet schedule commitments.
When asked to compare the current state of the Construction Materials Supply Chain to last year, the majority (87%) responded there are either fewer issues (42%) or about the same number (45%), while only 11 percent noticed more issues.
Back: Local Forecast Market
Tap the chart to view metrics
Back: Local Forecast Map
Increase: 26
Unsure: 9
Stays about the same: 85
Decrease: 36
Able to meet the current market volume: 72
Capacity is available for additional market volume: 7
Significant challenges meeting current market volume: 9
Challenged to meet current market volume: 68
Fewer issues: 66
Significantly more issues: 2
Significantly fewer issues: 2
More issues: 17
About the same: 69
Hover over each wedge to see data
Fall 2023 Construction Pricing Snapshot
Construction Cost Index
Source: Engineering News-Record Data as of October 2023
6,125
Current material price index
+0.3%
Source: U.S. Bureau of Labor Statistics All data as of September 2023
U.S. construction unemployment remains steady at 3.8 percent as of September 2023. The industry has added approximately 129,000 jobs since the start of the year. However, since May, job openings have started to decrease, moving from 416,000 to 350,000. According to the U.S. Bureau of Labor Statistics, the unemployment rate remained unchanged at 3.8 percent in September 2023. Nonfarm payroll (i.e., the number of workers in the U.S. except those in farming, private households, proprietors, non-profit employees and active military) employment rose by 336,000, nearly double the number Wall Street economists expected. Job gains occurred primarily in leisure and hospitality, government and healthcare.
U.S. Unmployment
Source: U.S. Census Bureau and Dodge Data & Analytics Construction spending data for August 2023 and Dodge Momentum data is from September 2023
Year-to-date through September, total construction starts—nonresidential, nonbuilding and residential—are down 6 percent. Nonresidential starts are down 7 percent and residential starts are down 17 percent. However, nonbuilding starts are up 25 percent. According to Chief Economist Richard Branch, “Risks continue to mount for the construction sector...a return to broad-based growth in construction starts is still some time away."
Construction Starts and Dodge Momentum Index
Source: Engineering News-Record All data as of October 2023
In Q1 and Q2, the Skilled and Common labor indices had sharp growth, influencing the climb in the BCI and CCI indices we saw in the first half of 2023. However, both labor indices have flattened the past 4 months which could signal that the BCI and CCI will follow as efforts to slow inflation impact construction volume.
Source: AIA, All data as of September 2023
The AIA Architecture Billings Index (ABI) score of 44.8 for the month is the lowest since December 2020—indicating a deterioration in business conditions at architecture firms in September. All regions of the country, as well as the commercial/industrial sectors, have seen a softening of the ABI. With a score of 44.0, multifamily residential is significantly dragging the overall ABI score, however, the institutional sector has upside potential at 50.2. In addition, the ABI reports, “the value of newly signed design contracts also slumped, indicating there is increasing reluctance among clients to sign contracts committing to new projects."
September ABI Report
Source: U.S. Energy Information Administration All data as of October 2023
Source: Engineering News-Record and U.S. Bureau of Labor and Statistics Producer Price Index, Drywall and Insulation data as of October 2023, Gypsum data as of September 2023
Drywall
Gypsum
Source: Steel Benchmarker All data as of October 2023
Source: Engineering News-Record and U.S. Bureau of Labor and Statistics Producer Price Index PG 58 data as of October 2023 WPU058102 data as of September 2023
Aspalt
Historically, as we shift into the cooler fall season, we expect fuel pricing to decline. However, with increased oil prices and supply cuts from Saudi Arabia, fuel prices have been higher in recent months. As the U.S. increases production, we anticipate pricing to stabilize and even mildly recede in the months ahead.
$613.08
Current price ($/ton)
+1.0%
Change from previous quarter
256.58
Current index
-1.6%
While the BLS index suggested a 12-month climb of 16 percent or more (5.8% for the quarter), the performance grade (PG) asphalt 58 costs per ton index only increased 2.6 percent in that same 12 month) period (-.3% for the quarter).Our recent market experience suggests the pace of asphalt pricing increases in 2023 was much closer to the PG 58 index.
Structural steel pricing continues to flatten and trend downward. Wide flange remains flat, while hollow shapes and plates are down slightly (1-2 percent).
Source: Engineering News-Record All data as of September 2023
Cement and concrete markets remain stable with improvement in availability compared to the last couple of years. However, there are still some occasional, local challenges with supply in markets with mega projects. We recommend close coordination with ready-mix providers.
PVC: The steady decline of domestic resin prices since July is resulting in lower PVC pipe prices. Copper: Raw copper prices are stable to down, but lower demand for pipe is putting pressure on prices. Steel: The automotive strike is lowering demand, causing steel prices to fall.
Source: U.S. Bureau of Labor and Statistics Producer Price Index All data as of September 2023
Lumber pricing remains flat at pre-COVID levels. As housing starts have cooled further to an annualized rate of 1.28 million in August (11.3 percent below July), we expect lumber pricing to hold steady.
Source: Engineering News-Record and U.S. Bureau of Labor and Statistics Producer Price Index Plywood and 2x4 S4S data as of October 2023 Lumber and Plywood data as of September 2023
Nickel, zinc, copper and aluminum pricing declines have continued as demand has remained low. Despite the downward trend of commodity pricing, declines in pricing have halted due to supply concerns and forecasted deficits.
Source: Kitco All data as of October 2023
355.9
+0.8%
361.2
387.7
+1.5%
$9.44
Current price ($/sf)
-8.2%
455.04
-1.0%
$453.49
Current price ($/msf)
+1.2%
$4.59
Current price ($/gallon)
+18.4%
$3.80
+5.5%
$2.66
Current price ($/mmBTU)
+4.3%
$1,485
Current price ($/net ton)
-4.4%
$936
12.8%
$719
-16.7%
The ENR Materials Index cooled down over the past two months and is on pace for a 5 percent annual increase, contributing to the modest increases in the BCI and CCI indexes. Similar to the BCI and CCI, the Materials Index does not factor in the mechanical and electrical equipment cost impacts that have driven project costs higher than traditional measures of construction inflation.
Both of ENR’s leading indicators, Building Cost Index (BCI) and Construction Cost Index (CCI) settled down in September and October, bringing the annualized forecast for 2023 back to the 3-4 percent range we anticipated at the onset of the year. However, neither index reflects the continued dynamics of the mechanical and electrical supply chains, which are driving project estimates to reflect higher escalation outcomes and take a cautious approach in escalation forecasting.
Availability and pricing of drywall continue to be stable. However, a few major manufacturers announced increases in October, pointing towards a diminishing supply of FGD gypsum (a byproduct of burning coal).
Natural Gas
Unleaded Gasoline
Diesel Fuel
Precast Concrete
Prestressed Concrete
Block and Brick
Hot-Rolled Band
Cold-Rolled Coil
Standard Plate
PG 58
WPU058102
162.86
-6.1%
338.9
-3.2%
196.61
-1.5%
PVC
Copper
Carbon Steel
Plywood
2x4 S4S
Lumber and Plywood
258
-2.2%
$925.01
+1.1%
$1,040.66
+0.1%
Aluminum
Zinc
$3.63
Current price ($/lb)
-8.0%
$1.12
-4.1%
$1.00
-0.5%
Nickel
$8.19
-18.1%
+3.9%
+67.8%
Data as of August 2023
Data as of July 2023
Data as of June 2023
According to the U.S. Bureau of Labor Statistics, the unemployment rate remained unchanged at 3.8 percent in September 2023. Nonfarm payroll (i.e., the number of workers in the U.S. except those in farming, private households, proprietors, non-profit employees and active military) employment rose by 336,000, nearly double the number Wall Street economists expected. Job gains occurred primarily in leisure and hospitality, government and healthcare.
Electrification is the primary means currently being pursued to eliminate the burning of fossil fuels and resultant carbon emissions. As the U.S. moves towards a future of nearly-zero emissions by 2050, the demand for electrical infrastructure will continue and even accelerate. Obviously, this process will subsequently create huge demand for the electrical equipment required to move power around the grid and channel it to both residential and commercial spaces.
We are highlighting this concern to point out that long lead times for electrical equipment are here to stay. In order for project teams, design teams and owners to maintain desired project timelines, our recommendation continues to be early release of electrical equipment.
At the present time, electrical power used in commercial buildings centers around lighting, air conditioning, refrigeration and a small portion of space heating. As we convert furnaces, water heaters, cooking appliances and clothes dryers from gas and oil to electricity, power requirements will increase significantly. Add to this framework, the goal of having two out of three new cars and light trucks sold in the U.S. electrically powered by 2032, and you start to understand why The New York Times recently reported that total electricity demand in the U.S. may double by 2050.
Lead Time and Price Snapshot
Special considerations:
Roofing supply chains have recovered. Many roofing system components that have been problematic have now stabilized. Polyiso insulation lead times now average three weeks or less, down from their 52-week peak. Most membranes are running at two to three weeks and cover board is averaging four weeks, down from 22 weeks. One category to watch is fasteners. Fasteners of certain lengths still have extended lead times.
After falling for six months after its peak in June of 2022, structural steel pricing is now rising. Hollow sections are up 10 percent and plate is up 11 percent. Wide flange remained flat through March but is expected to rise in April. Price drivers include a resurgent automotive sector, low levels of imported steel and rising scrap costs.
The availability of interior products has improved across the board and lead times are down significantly—even glass-mat gypsum products are readily available. Pricing levels have also generally receded. However, pricing for rolled steel is climbing. As a result, steel stud manufacturers have announced increases, with some being two separate increases of ten percent each in the first quarter of 2023.
Lumber pricing continues to hold steady at pre-COVID levels. Housing starts were reported at 1.4 million (annualized) in February, which is essentially flat compared to starts reported for the end of 2022.
Lab casework lead times are holding steady at the standard range of 8-12 weeks. Input material pricing is escalating (steel) and causing upward pressure on pricing to the market.
We are getting mixed reports regarding supply chain stability from different manufacturers. Some experience continued challenges from component suppliers and resulting lead-time extensions. Others report stabilizing supply chains and improved lead times in the two to three-month range. We expect more widespread improvements as housing demand continues to cool during 2023.
Material supply chains have generally improved slightly over the last quarter, but factory labor is still a challenge. Overall, lead times will likely come down over the next 6-12 months as demand from commercial projects eases. Prices are still expected to rise three to five percent this year as material and labor cost increases get passed on. Lead times for elevators vary considerably depending on the category: • Low-rise elevators range from 14-24 weeks • Mid-rise elevators range from 20-27 weeks • High-rise elevators range from 40-48 weeks • Escalators range from 12-20 weeks
While lead times have come down over the past three months, prices for pipe, valves, fittings and fixtures have become variable, depending on the specific category. The average sales price of PVC and steel pipe has steadily declined over the past three months, as commodity prices and freight costs have also declined. However, recent increases in steel costs may start to push those other material prices up moderately in Q1 2023. The average price of copper has decreased from its high in June but remained stable over the past three months, with prices expected to rise again. Regarding valves, fittings and fixtures, approximately 100 manufacturers have announced price increases in January 2023 that range from six to eight percent. Over the next 6-12 months, prices are expected to increase by 5-10 percent.
HVAC demand continues to be driven by strong demand for new construction and HVAC upgrades in both the public and private sectors. With the HVAC equipment market being heavily fragmented by a large number of manufacturers using proprietary designs, lead times can range from 10-12 weeks up to 65+ weeks. Air-cooled chillers and certain centrifugal chillers are running 45-65 weeks. RTU lead times have a very large range based on tonnage and air handlers can range from 10 to 65 weeks based on specifications. Generally, material lead times are improving. However, this is being offset by strong backlog and a shortage of factory labor resulting from the tight labor market. Some lead times including VFDs have improved, but ECM motor lead times have not and are still running 50-80 weeks.
Electrical gear continues to be the longest lead time material for most commercial construction projects. Lead times are specific to the type of equipment and manufacturer. However, switchgear from most manufacturers is being quoting at 70-80 weeks. Some are even quoting 100+ weeks for large transformers and double-ended substations. Other equipment, such as panel boards, busway and transformers are being quoted at 10-40 weeks depending on specifications. These lead times do not include the time for submittal approval. Demand from data center projects continues, as well as K-12, Higher Education, Healthcare and Automotive. Data Centers are the primary reason for increased lead times which is compounded by the general electrification trend to meet carbon reduction goals. The supply and demand imbalance, as well as commodity and labor costs, is predicted to push prices up over the next 6-12 months.
Lead times for most commodity electrical items are down as manufacturers have stabilized their supply chains. However, medium voltage cable lead times are still in the 30-45 week range. Prices for copper have bottomed out as COMEX copper prices have increased. Wire is expected to rise 5-10 percent over the next 6-12 months. However, aluminum wire is expected to stay relatively flat.
Order intake for generators among the major manufacturers continues to run three to four times the historical rates. Demand is coming from all sectors, but data center demand continues to be extraordinary. The supply chain is still challenging. For example, even when the generator can be delivered on time, custom sound enclosure fabrication may become the constraint based on the lack of industry capacity for this level of demand. Material and labor cost inflation will drive significant price increases this year. The 2MW gensets are now exceeding 100 weeks. Forecasts indicate that the need for data centers will increase over the next three to four years. Gensets in the range of 230kW to 2MWs are running 65-75 weeks due to broad demand from many industries. Prices continue to rise at an annual rate of 15-20 percent due to material, labor and overall demand.
Shipping container prices continue to decline as consumer demand continues to shift away from goods. Congestion has eased as capacity continues to be added. Rates for routes from Asia to the U.S. West Coast are around $1,000 for 40’ containers, which is near pre-pandemic pricing.
Door hardware and hollow metal door lead times continue to hold in the 7-10 week range. The most challenging materials continue to be on the electronic access side. The availability of semiconductors is driving lead times of these products and we recommend allowing 30 weeks lead time. Improvement is expected in the third and fourth quarters of 2023.
So, what does this mean for electrical gear? As we have pointed out in prior Market Trends reports, electrical equipment providers are already stretched to capacity. Lead times for electrical gear are in excess of 80 weeks (about a year and half) today. Many manufacturers are expanding capacity, but we have not yet seen a positive impact on lead times.
Electrical equipment providers are stretched to capacity: lead times for electrical gear are in excess of 80 weeks.
