Commercial Real Estate

After Years of Flat Pricing, New Demand Has Spurred Escalation in the Valley

Mortenson Construction today released its quarterly Construction Cost Index report for Phoenix along with five other metropolitan areas in the U.S. According to the report, in the second quarter of 2016 the national demand on steel materials created a significant price increase for reinforcing, structural, light gauge and window frame steel.


According to data from the Bureau of Labor Statistics, employment growth rates for non-residential construction continued its trend of fluctuating and has now nearly stalled, after seeing modest growth in 2015.


Costs for non-residential construction labor, material and equipment costs in Phoenix dipped slightly in the first quarter of this year, but picked up again in the second quarter. Growth has remained at a rate about two points below the national average.


Due to demand on steel materials, along with slightly higher national construction costs, Mortenson believes construction pricing in Phoenix will continue to escalate, but at a modest pace.


“While the market has experienced relatively flat pricing for years, Phoenix is now seeing an increased demand in construction services and materials,” said Ty Bohlender, chief estimator, Mortenson. “After seeing a 2% increase in this past quarter, owners should prepare for a 3% to 4% increase in project costs going into 2017. While this not out of order in historical terms, it is a change of pace from what we have witnessed in the market over the past 6 years.”


Prices of many building materials and components in Phoenix were flat in the latest quarter, although several saw substantial growth, including: reinforcing steel, gypsum board, entrances/storefronts and structural steel/decking.


Mortenson tracks and reports on six metropolitan areas in the U.S. including Chicago, Denver, Minneapolis, Milwaukee, Phoenix and Seattle. The Mortenson Construction Cost Index is calculated quarterly by pricing representative non-residential construction projects in various metropolitan areas.

It is part of a portfolio of industry insights and market studies provided by Mortenson.

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