Nonresidential construction prices have experienced a slowdown in increases since the height of the COVID-19 pandemic, yet 2024 may still witness a slight uptick in costs. According to the Turner Building Cost Index, which has tracked construction prices for over 80 years, the index rose 3.6% in the third quarter of 2024 compared to the same period in the previous year. While this indicates a moderation in cost growth compared to earlier in the pandemic, regional differences and specific factors still contribute to higher-than-average cost increases in some markets.
Several key factors drive these regional variations. Some geographic areas are experiencing more intense construction activity than others, which fuels increased demand for labor, materials, and equipment. Additionally, numerous mega projects, such as large infrastructure developments and commercial complexes, are underway in various parts of the U.S., pushing costs up further in those markets. For example, areas like New York City, Los Angeles, and Texas have seen substantial growth in construction projects, leading to more competitive bidding and, consequently, higher prices.
Despite these regional disparities, the broader trends show that material prices have remained relatively stable during the second and third quarters of 2024. However, specific items, such as mechanical and electrical equipment, continue to see price increases. These equipment prices are driven by prolonged lead times and strong demand, which remain high as construction projects progress. In particular, the ongoing supply chain disruptions and challenges in global manufacturing contribute to the continued upward pressure on these components.
The Turner Building Cost Index also saw a sequential increase of 0.77% from Q2 to Q3 2024. Over the past year, the index has climbed 3.64%, reflecting a general upward trend in nonresidential construction costs. In contrast, data from the U.S. Bureau of Labor Statistics paints a different picture. In October, nonconstruction input prices rose 0.3% month-to-month, yet they were still 0.5% lower than the same period the previous year. This discrepancy underscores the broader scope of Turner’s index, which includes various factors like labor rates, productivity, and local market conditions, in addition to material costs.
Turner Construction compiles the Building Cost Index using data from its national projects. This includes analysis of labor costs, material prices, productivity levels, and regional market competitiveness. The firm’s approach ensures that the index captures a wide range of factors impacting construction costs across different markets and regions. As a result, it may not align exactly with other indices that focus more narrowly on specific categories or metrics, highlighting the diverse nature of cost increases in the construction industry.
In conclusion, while construction price increases have slowed from the peak pandemic levels, various regional factors, strong local activity, and sustained demand for certain materials and equipment suggest that nonresidential construction costs may continue to rise modestly through 2024.
