Navigating the Upward Trending of Campus Construction Costs

Rising construction costs are forcing universities and colleges to trim or delay facilities, posing new challenges for architects, contractors and college administrators.

Just this spring, our firm got a look at how fast costs are rising. Estimates for three of our projects, located in Tennessee, Virginia and Florida, all came in above expected levels—one at almost 30 percent the estimate of just two years ago.

To look deeper at what is happening, we’re hosting a webinar on Wednesday, August 17 from 11:30 a.m. – 12:30 p.m. with experts from the construction industry and higher education systems. Click here to register or learn more.

One thing seems obvious. Rising construction costs will pose difficulties for budget-strapped higher education facilities.

For almost 30 years, construction costs have trended toward a 3.1 percent annually compounded escalation rate, says Vermeulens Cost Estimating.

Now, costs are rising faster as the economy continues to rebound from the depths of the Great Recession. The Turner Building Cost Index shows an almost 5 percent increase in non residential construction costs in the second quarter of this year verses the same time last year.

Costs are higher in some areas than in others.

Dodge Data & Analytics predicts that non-residential construction—excluding manufacturing—will rise 11 percent in major markets this year after a 19 percent increase last year.

The business publication, Crain’s, recently reported that some New York City developers say construction costs are up at least 15 percent in the past two years.

The upcoming webinar will go more in depth on the issue, as well as how clients can protect projects. We see these as the major factors driving costs.

• Higher labor costs. They’ve risen as demand exceeds supply in many markets. During the recession, some 2 million construction workers lost jobs. Many didn’t return to the industry. That’s led to a shortage of skilled labor, especially in strong construction markets
• Smaller pool of qualified subcontractors. The recession took its toll on the number of subcontractors, too, so there are fewer of them bidding for jobs in hot markets.
• Higher material costs. Lower fuel costs have helped keep material costs down, but some are still forecast to rise. Market researcher IBISWorld predicts that high volatility in costs for commodities such as steel and lumber will contribute to significant price gains for many goods used in construction. Cement prices, for one, are forecast to rise almost 7 percent this year. Some materials may be in short supply for years. Landscapers have found they can’t get trees of a certain size because not enough of them were planted a few years ago.
• Conservative pricing driven by uncertainty. During the recession, some contractors and subcontractors were so hungry for work that they bid at cost just to stay afloat or retain workers. That’s no longer the case. Construction has rebounded post recession in most sectors. Construction dollar volume is the number one driver of construction prices, notes expert Richard Vermeulen, who will be on our panel.

I am happy to report that some higher education administrators are coping with higher costs without delaying or mothballing projects.

The building project that came in almost 35 percent over its initial cost estimates was retooled. It shrank in size by about 20 percent and turned out to be a more efficient project.

We expect more budgeting issues ahead. University and college buildings built in the 1960s and 1970s — in response to the post WWII baby boom and big government investments in science facilities — have or will soon cross their 50-year mark, a time when major renovations are typically needed.

Along with new construction, renovations will drive up demand for contractors, labor and materials. All of that will require more creativity on the part of everyone involved to get the desired result, which is great spaces for students, staff and the community.

I hope you join our webinar and take part in what will be an enlightening discussion.