These are unprecedented times in the construction and building market. The global pandemic has completely transformed many industries, and has created unpredictable prices in every industry. Recently, CBRE published that construction costs are set to increase by 14.1% in 2023.
Last year, there was a historic 11.5% increase in cost, and this year’s jump will also far outweigh the historical average of a 2 to 4% annual increase. Due to continued supply chain delays, alongside higher labor costs, this shift is not surprising according to the experts. This high increase in percentage hasn’t been seen since 2007.
Another element adding to the change is the increase in raw material cost. Companies are struggling with material accessibility which leads to sharp changes in material pricing. Manufacturers’ costs are changing, and they are doing so rapidly. Vendors and logistics companies are having to open their lines of communication more often to update clients with their current costs.
Contractors and builders across the country are also choosing to modify their plans and product specifications to help navigate their budgets. Large hedge funds and stock market movers are choosing to hold and wait, as the economy is expected to once again transform in an unpredictable way.
One strategy that our team at RM Interiors has implemented is encouraging clients to schedule projects and lock in bids sooner than they normally would. This allows more time to maneuver through any changes in cost and helps ensure product availability. Communication, one of our cornerstones, has never been more vital than it is now.
While the supply chain is easing up slightly, and shipping costs are returning to normal, labor costs and material costs add a layer of complexity. According to the IHS Market PEG Index, which measures construction costs, we should expect more of the same. A score higher than 50 indicates a markedly higher spike in price, and materials and equipment scored a 63.4. Labor came in at a whopping 81.8, with a predicted score of 82.1 in the next 6 months. Keeping in mind that skilled labor is necessary for the sustainability of projects, companies will need to invest more in their employees and contractors to see their projects through to completion.
Finally, there has been a pivot back toward needing more office work, as the hot housing and home renovation markets experienced a massive increase in the last 2 years. Because of this, projects were coming in quickly while office staff were unprepared to address the influx of leads. Companies brought in administrative staff to lower the wait times on leads due to this.
As companies continue to scale back their current production speed, the need for these new office members will also shrink. In 2023, staff volume may lower to meet the new reduction in project demand.
With all of the unexpected and rapidly changing trends in the construction and housing markets, the dramatic increases will subside and become more modest as we move into 2023. You can expect raw materials cost to plateau, labor costs to begin trending down slightly, and project demand to continue to decline. With more investments being made in office workers in 2021, these inflated staff numbers may trend down in response to the demand for construction cooling off.