Surging Construction Costs: Implications for Commercial Real Estate
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In the year that followed the onset of the global COVID-19 pandemic, there was an unprecedented surge in construction costs. Nationwide, building materials rose at the fastest pace in a decade from March 2020 to September 2021 (Figure 1). Many key construction material prices climbed rapidly, in particular, lumber, metals, and plastic products (Figure 2). 1 Subsequently, commercial real estate (CRE) development and renovation costs rose significantly, and many planned projects have experienced sizable budget increases and substantial delays. According to a recent survey by the National Multifamily Housing Council (NMHC), 93% of the largest U.S. multifamily construction companies have experienced steep material price increases and a lack of available construction supplies.2 In recent months, some commodity prices had slightly improved; however, overall building costs remained elevated, up by approximately 35% from early 2020.3 The sharp increase in construction costs is having profound impacts on both new development projects and existing CRE assets.
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