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April 1, 2015

Report: High demand but high cost for new construction in Seattle

  • The average cost of materials here — steel, rebar, gypsum, plywood and lumber — is 7.4 percent higher than the national average.




  • A recent report from JLL finds construction demand is quickly rising this year across the country — especially in the Seattle area.

    The bad news is the cost of building is also going up fast.

    “Leasing momentum is boosting construction demand across multiple commercial property sectors, but raw material and labor costs are making it more expensive to get out of the ground than ever before,” said Todd Burns of JLL in a news release. “Demand is exploding, but demand isn't everything. You have to consider the bottom line of every project to make sure it makes economic sense short- and long-term.”

    Burns is president of JLL's Project and Development Services division for the Americas.

    In the report, Seattle is on the list of cities with the highest construction costs; New York City and Chicago are at the top. Other major cities on the high-cost list are Minneapolis, Boston, Los Angeles, Philadelphia and San Francisco.

    The lowest construction costs are in Dallas, Denver, Atlanta and Pittsburgh.

    JLL said cities with more available land and lower labor costs had lower overall construction costs. Cities with more union workers had more costly labor, which is the largest component of overall construction costs.

    Seattle construction workers earned $57.05 per hour including benefits, versus the national rate of $51.67 per hour. JLL said there are no labor shortages in Seattle, but other areas have been affected.

    Construction employment is growing faster than overall employment nationwide, but JLL said productivity has declined because many new workers are under-trained for construction jobs.

    National construction unemployment last December was 8.3 percent, still much higher than the 5.6 percent overall unemployment rate, but JLL said the two indices will cross in 2017.

    The decline in construction unemployment will be partly due to a shortage of construction workers, JLL said.

    In Seattle, the average cost of materials — steel, rebar, gypsum, plywood and lumber — is 7.4 percent higher than the national average.

    JLL said materials costs should remain somewhat flat over the next five years, but won't offset the impact of rising labor rates.

    Relief could come next year. Some economists are predicting a slight decline in prices for items such as steel and rebar due to import pressures and a drop in national housing starts.

    The report said the trend of rising overall construction costs will continue through 2020, and Seattle will be slightly higher than the national average.

    There's some good news for local contractors: The report found Seattle has a lower replacement cost for buildings, meaning it can be more cost-effective for companies to build new than rent existing space. The only other cities in the study with low replacement costs were Chicago and West Los Angeles.

    A Gilbane study shows the construction industry is still 22 percent below its peak levels leading up to the Great Recession. That study says it may take seven to eight years to get back to those levels.



    
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