A lot of commercial building renovation or construction plans were in the works last year with hopes to break ground in 2020. That is until the entire world practically came to a halt as a result of COVID-19, including some commercial construction projects.
Construction starts are down since last year, mainly due to uncertainty over the impact of the coronavirus pandemic. During a season when nonresidential building projects typically ramp up, the second quarter of 2020 was relatively flat.
When a commercial building project is put on hold for any reason, there are important factors to keep in mind when you finally receive the green light to go-ahead. A lot may have changed since you first drafted those plans, especially when it comes to your commercial construction costs.
When you began the preliminary steps to build or renovate your facility or corporate office, you likely worked with a team of architects and engineers to receive an estimate and proposed construction timeline. Like many industries that rely on skilled labor and various supply chains for materials, prices may fluctuate, resulting in a kind of unanticipated scope creep. That has never been more true than today.
Owners may not realize that certain materials or equipment can sway construction budgets dramatically, and building costs can change over a period of time due to various factors. When shelter at home orders were put in place across most of the country in early spring 2020, for example, construction activity slowed significantly. As a result, many mills and supply chains were left with an overabundance of lumber and other materials, sending prices down. Some companies temporarily shut down or slowed production capacity considerably.
It didn’t take long, however, for construction and the demand for products to ramp back up, quickly depleting inventories and leaving mills playing catch up. Being caught off guard, lumber prices skyrocketed along with many other building materials. Add in the impact of tariffs on Canadian mills, and some lumber costs rose as much as 60% in certain regions. Some economists predict prices may come down while others anticipate steady increases.
Market volatility stresses the importance of working with professional estimators who constantly watch for factors that influence the overall cost of construction materials. They stay abreast of markets and research publications, suppliers, and official government reports that track individual commodity costs. To minimize surprises, it’s always best to have your estimator take a fresh look at any estimates you received to make sure they’re still on par before giving an on-hold project the green light to move forward.
Another factor that can significantly impact a construction estimate — both positively and negatively — is labor costs. Project owners often pay less attention to the labor aspect of their options or decisions and instead focus on material costs. Within construction estimates, however, labor constitutes more than 50% of the overall project cost and can vary from month to month.
Like many industries, most construction firms reported labor shortages leading up to the pandemic. Then suddenly, nearly a million construction-related jobs were temporarily laid off due to halted projects and efforts to mitigate health risks. The construction industry is now seeing robust labor growth once again, bringing back its workforce and, in some regions, exceeding their pre-pandemic capacity.
Furthermore, additional infection control measures may need to be put in place, too. All this uncertainty in the construction labor market might have an impact on your project’s budget. Qualified construction managers and estimators keep a pulse on labor markets and monitor updates from regions and unions they work with.
Despite challenges for some industries, the economic fallout from the pandemic is providing opportunities for some business owners and communities by way of lower interest rates. Those who plan on moving forward with their construction plans generally are finding available funding at attractive rates for borrowers. Municipal bonds for public projects, in particular, are more attractive than ever. These savings in rates may help mitigate rising costs elsewhere.
As you revisit your contract with your construction team, it’s important to consider all the implications of waiting things out. In addition to potentially higher or lower costs associated with materials, labor, and lending, some owners and contractors are including language to mitigate risks associated with the pandemic — a new “clause” that no one saw coming less than a year ago.
That’s why it’s so important to work with a construction management company that is big enough and has the resources to address such risks, yet small enough to remain flexible and partner with you to navigate this new world together. When exploring next steps, contact our experienced team at The Samuels Group. We’re happy to address your concerns and find ways to overcome new challenges.
Of course, there’s a lot more to consider when building a new facility, so check out our helpful guide below with top questions you should ask as part of the construction planning process.
