After rising sharply during the COVID-19 pandemic and in the immediate aftermath, construction costs have moderated, but remain a challenge for builders nationally and in San Diego, according to JLL.
“What we’re seeing in the market right now is material prices aren’t going up as fast as they were. Material prices were going through the roof and kept going up month after month,” said Kurt Gilliland, JLL senior vice president and market lead of project and development services.
“At one point during the pandemic, we were seeing 15% to 18% year over year,” Gilliland said. “Now it’s probably tracking one or three-quarter of a percent a month.”
Fluctuating Costs
Costs may not be rising as far as they had been. “But they’re not going down,” Gilliland added. “I’m not seeing drywalls being cheaper, I’m not seeing metal studs or electric gear going down.”
Senior vice President and Market Lead
JLL
The ongoing uncertainty over costs is delaying some projects. “We have projects under construction right now and we’re getting regular delay letters from manufacturers that they’re missing the (delivery) dates they gave us three months ago, four months ago,” Gilliland said. “We have projects where we might have to just sit for a month waiting for equipment. It definitely increases the cost of the project while we wait.”
Heating and air conditioning equipment has had ongoing delays in delivery due to the shortage of silicon chips, according to JLL.
Nationally, JLL reported that the “latter half of 2022 saw a prolonged decline in construction materials prices, winding down a period of overheated inflation and extreme volatility.”
Even so, the average prices of materials for the last six months of 2022 were 16% higher than in 2021, according to JLL. Exceptions included lumber, where prices continued to drop as residential construction waned due to rising interest rates.
Job Shopping
At the same time, JLL reported that the construction industry was “exceptionally busy” while predicting “a brief contraction” in the industry later this year, with construction activity expected to peak in mid-2023.
“We think a slowdown is coming just because we’re hearing from the design industry that they’re actively looking for work, that they have resources available,” Gilliland said.
On top of the still-rising cost of materials, labor costs continue to bedevil builders.
The San Diego labor market also remains tight, and Gilliland said there are more jobs open than there are people to fill them, so workers can shop around to get the job that offers the highest wage.
“There are still people playing musical chairs in the workforce and that’s driving up the cost of labor,” Gilliland said. “Whether we like it or not, San Diego is still a very expensive place to live, and people are having a hard time making ends meet and they’re either asking for more money or they’re moving to other locations.”
