13 Dec Price Adjustments for 2014
December is when businesses take time to assess their successes and establish goals for the following year. Looking forward into 2014, business goals will include increasing revenue and adjustments to construction products and services. Price adjustments for 2014 will have an effect on your project costs.
Our research indicates that companies are raising prices for a number of key construction components which will have an impact on project costs. Some of these cost increases will also affect consumer goods in general.
The increases have two (2) sources:
- Commodities used in construction
- Trade contractor backlog
Prices will vary based on the local market conditions; however the trend is constant in that as the level of construction activity increases, so will the pricing. The greatest impact is currently being felt by the residential contractor and several of these increases will carry over to commercial contractors.
- Construction Framing $1.00-$1.50/SF
- Drywall 10-15%
- Concrete $8.00-$10.00/CY
- Rebar $10.00-$15.00/TON
The last five (5) years have eliminated the financially weak trade contractors and eroded balance sheet assets. Contractors who were overextended or had quality delivery issues are gone. Most owners would quickly endorse this pruning. The remaining trade contractors are filling their project backlog expecting to do more with existing crews. Trade contractors are becoming more selective in work they are pursuing and not discounting prices to obtain work. This all translates into higher construction pricing.
As expected, the small commercial construction firms will reach capacity first and in many regions this has already happened. Mid-size and large trade contractors are experiencing a healthy volume project work. It is expected that their capacity challenge is still several months away.
Bonding capacity is a key limitation for trade and general contractors. With the last five (5) years eroding their balance sheets they are limited in which projects they can pursue so to use their capacity on the most profitable work. A common theme in 2014 will be for contractors to request owners to waive the bonding requirement on projects.
Developing a product in the small commercial (up to $ 5M) and residential market will see less competition. Expect to see prices rise at a quicker rate.
We expect that development programs greater than $5M will start to see capacity issues the last half of 2014.
In Atlanta, that may be accelerated as the growth of construction has dramatically increased. Capacity issues will continue to compound when two (2) sport stadium projects start construction in late 2014. These two (2) projects represent over $1.5 Billion of development. The last time Atlanta experienced such a construction surge was the 1996 Olympics $1 Billion construction for the program.