Development in CRE is going strong, but according to information recently released by the Associated General Contractors of America, overall costs are going up. According to their survey of more than 1300 construction companies across the country, there’s a shortage of qualified workers in the industry, and that spells higher costs.
In fact, construction costs are rising faster than the rate of inflation. Rider Levett Bucknall’s Q1 Construction Cost Report for this year shows a 5.5 percent increase in the national average in construction cost from January to December 2014. It goes on to explain the situation this way: “Although the actual costs of labor and material continue to increase slowly, the gap between demand and supply leads to upward pressure on bid prices as increasing construction activity chases static resource availability.”
Companies are having difficulty filling jobs at all income levels: project managers, engineers, and estimators as well as carpenters, sheet metal installers, and concrete workers. 50% of the AGCA’s survey respondents rated their pipeline for workers as “below-average” or “poor.”
A consequence of this worker shortage is higher pay for those who are available, and increased overtime pay. 56% of the survey respondents have increased their base pay for hourly workers.
The shortage makes management think twice about taking on some jobs. Some companies are bidding on fewer jobs and are not as likely to take on public projects because of their lower profits. Delays are more common as difficulties are encountered in finding skilled workers. This is expected to have a stifling effect on commercial development, as cost increases are passed along.
The AGCA attributes the shortage to several factors. A large percentage of construction workers were laid off during the economic downturn, and have either retired or moved on to other things. The construction workforce is aging, and there are fewer young people coming along to replace them. The AGCA points to a lack of education programs in the field, and calls for increased funding for career and technical education. Meanwhile, some companies are providing their own apprenticeship programs to fill the labor void.
The shortage does not appear to be limited to one region. The Tampa Bay Times reports that the situation is “threatening to derail a surge of new development in Florida as contractors struggle to find qualified workers.” A Minnesota manager commented: “We’ve had to adjust to how long it’s going to take to find a person or two. A couple of years ago, we could place an ad and have someone in place within a few weeks. Now, for a May hire, we had to lay the groundwork in February.”
Companies across the country are feeling a pinch, and cost is not the only concern. Operating with fewer qualified workers can have a negative impact on productivity, project quality, and safety as well.
These are important considerations for CRE development, which is extremely active in many parts of the country. Based on this information, developers should expect to pay more in construction costs and also be prepared for projects to take longer to complete than they have in the past.