Northern California Construction Costs Continue to Rise

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December 12, 2016

By: Danielle Friend, Vice President, JLL

Northern California isn’t getting any cheaper when it comes to construction costs.

Bay Area construction costs trail only New York

Not surprisingly perhaps — since they were also #2 and #3 respectively among the most expensive markets in which to build last quarter — San Francisco, and San Jose trail only lofty New York City in JLL’s 2016 Q3 U.S. Construction Outlook.

San Francisco financial district cityscape panorama

San Francisco Bay Bridge and financial district

Outside the top three cities with highest construction costs, there are surprises, though.

Oakland jumps up two spots to fourth place, pushing Chicago down the list.  The top five most expensive cities this quarter maintain a tight race. New York and Chicago share a narrow 12.3 percent difference in construction costs.

Also moving into the top 10 in terms of highest construction costs is Sacramento (#9), which falls just behind Los Angeles.

Labor shortages

Significant construction pipelines, paired with labor shortages in the West, will keep Northern California metros at the top of our list for several quarters to come.  In fact, the Western region is nearing it’s peak with near term construction pipelines expected to remain low.  The region is also projected to be two quarters behind the current slowdowns in the Northeastern U.S.  Some architecture and contracting firms in the West are already reporting smaller growth in business compared to prior quarters.

In California, many markets are struggling to find enough workers to fill job openings for projects. Expect this trend to continue and be reflected in growing labor costs throughout the state as firms try and work through project backlogs.

Materials up 2.2%

While the average price of cement fell by about 1 percent from the previous quarter and steel maintained a relatively stable price the cost of lumber shot up 3 percent.  JLL’s Materials Cost Index is up 2.2 percent this year compared to 2015.

Nationally, construction spending reached $317 billion in the third quarter, a one percent growth increase year-over-year. This may be the highest point this cycle, compared to past third quarter growth averages of 7-10 percent year-over-year.  The small increase could indicate an impending slowdown.

View the 2016 Q3 U.S. Construction Outlook interactive website here, or download the full report here.

About the author:

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Danielle Friend, a Vice President and strategic advisor, leads JLL’s project and construction management services for the Northwest office sector. For almost 7 years, Danielle has helped transform the spaces where people work, helping companies realize and achieve their broader ambitions and business goals. From consulting and capital management through design and construction, Danielle brings a life cycle perspective to every project.

Contact Danielle directly by phone at +1 (415) 395-7277 or via email at Danielle.Friend@am.jll.com.

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