U.S. construction costs are forecast to increase 14.1% year over year by the end of 2022 due to the ongoing labor shortage, inflation, supply chain disruptions, pandemic reverberations, and the war in Ukraine, according to a report from commercial real estate services and investment firm CBRE. The projected increase for 2022 exceeds 2021’s 11.5% rise and “well outpaces” the historical average gain of 2% to 4% per year, states the report.
The anticipated 2022 gain is the largest since CBRE began tracking cost projections in 2007. Beyond 2022, CBRE forecasts cost increases will return to their historical range at 4.3% in 2023 and 2.9% in 2024 as supply chain issues recede, inflation eases, and production of materials impacted by COVID-19 return to pre-pandemic levels.
“The construction industry thrives on predictability, but we continue to grapple this year with numerous challenges and volatility, making estimating and managing costs more difficult,” says Nicolas McNamara, director of cost consultancy for CBRE. “Labor shortages and wage pressure—combined with supply chain disruption—have contributed to a sharp increase in costs. But demand for new projects remains strong. Understanding the levers moving construction costs, which are analyzed in this report, is key to navigating this challenging environment.”
CBRE based its construction-cost forecast on labor costs, material costs, and contractor margins, which often rise when work backlogs increase. While demand for residential housing and commercial construction is robust, material costs have escalated due in part to curtailed production amid the pandemic and increased shopping costs. CBRE says the tight labor market has also driven up overall costs.
Certain cost pressures, including material shortages, longer-than-usual lead times for material delivery, and labor scarcity, are likely to persist in the short term, even with overall costs increases expected to recede in the coming years.
The full 2022 U.S. Construction Costs Trends report from CBRE provides a detailed analysis of construction activity and labor market trends, impacts on material costs, and implications of construction cost increases.
