Developers understand the many reasons construction projects get delayed. Financial challenges can bring a project to a standstill in the face of interest rate increases and material and equipment price volatility. There is also the ongoing challenge of finding sufficient manpower to get the job done and the weather is a factor here in the Midwest.
In the current economic environment, you may consider delaying your construction project. But before you make that decision, consider the compelling reasons to forge ahead. Being a developer is always risky and challenging. With the volatility affecting the industry today, it is important for developers to thoughtfully proceed, as opposed to delaying projects. Some perceived challenges can actually present opportunities.
Longer lead times can provide greater flexibility, which enables you to source building materials at the best possible cost. Lead times for many construction materials remain longer than normal, so think months versus weeks. Lead times are especially important for items like steel, electrical equipment, and mechanical equipment.
There is a perception that if you wait until next year, prices may come down. The flaw in that thinking is that even in periods of normal inflation, the cost of construction increases 3% to 5% annually. While the rate of price increases will likely slow compared to the past two years, price deflation is highly doubtful.
Construction wages have continued to rise, and labor costs are expected to increase up to 6% this year. The Bureau of Labor Statistics estimates there are a half million job openings in the construction industry, and that number is likely to grow with many construction workers set to retire soon. With pressures related to the labor shortage and a skills gap projected to continue and even worsen, it’s unlikely labor costs will ease anytime soon.
The high cost of labor and materials is relative, and delays can lead to significant cost increases on any project. Delaying your construction project may be worth considering, but once you consider the real cost, it is likely to be much more costly than proceeding now.
Bob Ritter
Director of Business Development
The Douglas Company
