Advertisement

Advertisement

Report Predicts Mixed News on Construction Price Inflation, Supply Chain

By Katie Kuehner-Hebert | Mar 22, 2023
stacks of money
Will 2023 be the year where recessionary indicators dampen the trend of double-digit annual construction inflation?

Advertisement

Advertisement

Advertisement

Will 2023 be the year where recessionary indicators dampen the trend of double-digit annual construction inflation? While many economists think so, some contractors on the ground say local capacity trends belie that, according to New York-based Skanska USA Inc.’s Winter 2023 Construction Market Trends Report.

“Despite reports that large corporations are tapping the brakes on projects and there are increased challenges with securing project financing due to rate and debt service issues, there are still market capacity concerns,” wrote Steve Stouthamer, executive vice president of project planning for Skanska USA’s building division.

Based on the opinions of the firm’s project planning team in its 31 local markets across the country, Skanska USA now expects elevated construction price inflation of at least 3% to 5% in those metropolitan areas over the next year—and even higher in two markets, Phoenix and Orlando, Fla. Both of those metropolitan areas should experience “significant” price inflation above 5% over the next year.

Phoenix is overall a “robust” market, but with some labor and material supply issues, according to the report. The metropolitan area’s major project, the Taiwan Semiconductor plant, is consuming vast labor resources, causing several companies in the microelectronic industry to slow or put new projects on hold.

“Our clients in the data center market continue to build and plan for new buildings with some caution around lead times for the procurement of electrical switchgear, generators and computer room air-conditioning units,” wrote Tom Feeney, the firm’s vice president of preconstruction in Phoenix. “We are also seeing professional service staff labor loosening up and more qualified personnel are readily available for hire.”

Despite a skilled worker shortage and a slowing of production in Orlando that has caused subcontractors to increase their margins, “construction starts continue to be strong, and area projects under development are moving forward, with several significant new projects exceeding $1 billion in the pipeline with 2023 start dates,” wrote Tom Stickrod, vice president of preconstruction in Orlando.

Regarding supply chain issues, there are signs that recovery is growing, but overall, the outlook is still mixed, wrote Skanska USA’s supply team of supply chain strategists.

“One of our main concerns for 2023 will be growing lead times for mechanical and electrical equipment,” the team wrote. “To help maintain project schedules, we recommend the early release of these products—52 to 80 weeks, depending on equipment type.”

Additionally, supply chain disruptions related to semiconductors sourced in Asia are delaying many equipment deliveries by up to six months, according to the team. Manufacturers say an increase in manufacturing and data center construction projects is the root cause.

“As the build-out for electric vehicles and EV battery manufacturing plants continue and reshoring of semiconductor manufacturing accelerates, we expect lead times to lengthen even more,” the team wrote. “Many HVAC and electrical component manufacturers are launching capacity expansion projects, but they will take time to ramp up.”

Regarding the supply chain for electrical gear, the semiconductor shortage is affecting the supply of trip units and circuit breakers, according to the team. “Unprecedented demand from the data center market continues to push out lead times for switchgear, switchboards, busway, UPS systems and transformers,” the team wrote. “Switchgear and switch panel lead times continue to be at 70 to 80 weeks and are expected to increase due to demand from the data center, industrial, healthcare, education and semiconductor sectors.”

On the other hand, lead times for most commodity electrical items are down as manufacturers have stabilized their supply chains and increased factory output, according to the team. Declines in copper and PVC resin raw material costs have helped minimize price increases.

“However, labor costs are trending up due to inflation, and prices are expected to increase by 3% to 6% over the next 6 to 12 months,” the team wrote.

About The Author

KUEHNER-HEBERT is a freelance writer based in Running Springs, Calif. She has more than three decades of journalism experience. Reach her at [email protected].  

Advertisement

Advertisement

Advertisement

Advertisement

featured Video

;

New from Lutron: Lumaris tape light

Want an easier way to do tunable white tape light?

Advertisement

Related Articles

Advertisement