2022 Construction Cost Trends and Property Valuation

COVID-19’s business ramifications extend well-beyond the more popularly-discussed healthcare and restaurant industries. Throughout 2021 and into ’22, the construction industry faces skyrocketing costs, presenting significant challenges for new construction projects as well as property repair and replacement work. This, in turn, creates a dilemma for organizations with large property portfolios. How do you place value on your property when costs for construction and materials are so volatile? Current trends affecting valuation costs include:

Labor Shortages

2021 survey from the Associated General Contractors of America and Autodesk found that 61% of construction businesses reported projects were being delayed by workforce shortages, with 72% stating the candidates that are available simply aren’t qualified due to lack of skills and other factors. This has caused businesses to invest in professional development, as well as add hiring bonuses and incentives to attract qualified candidates, ultimately increasing recruitment costs.

Material Costs

In a December 2021 Producer Price Index (PPI) report, the U.S. Bureau of Labor Statistics stated building material prices have increased 17.5% year-to-date — almost seven times the December YTD increase of the prior year (+2.6%) and well above the average YTD increase of 1.5% between 2015 and 2020.

Supply Chain Interruption

The International Monetary Fund, in their October 2021 World Economic Outlook, stated, “Rising commodity prices and supply chain bottlenecks are putting upward pressure on headline inflation rates. Moreover, the unprecedented nature of the current recovery has raised questions about how long supply will take to catch up with accelerating demand.” And we’re seeing the effects of this in the construction industry. The AGCA survey showed 75% of construction project delays were caused by either materials shortages or longer lead times for materials.

Knowledge and Planning Help Mitigate Risk

At Centurisk, we work with our customers to promote awareness of these dramatic shifts and the ways they affect property valuations. We keep a watchful eye on the trends to help customers better understand valuation results and be prepared for the road ahead.

Want to see how Centurisk’s property valuations can help you prepare in difficult risk climates? Simply fill out the form below and a member of our team will be in touch!

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