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Dec 10, 2023

Report: Construction costs inch upward in Portland • Daily Journal of Commerce

By: Joe Yovino in Construction May 26, 202311:45 am

By: Joe Yovino in Construction May 26, 202311:45 am

Construction costs in Portland grew 4.6 percent in the first fiscal quarter of 2023 — below the national increase of 5 percent — Mortenson reported in its first construction cost index of the year. According to the report, the rise in construction costs was beginning to slow compared to hikes over the last two years; however, finding labor was still a challenge for many contractors kicking off new projects.

Nonresidential construction costs across the nation increased in Quarter 1 by 0.6 percent, which is a 5 percent increase over the previous 12 months, Mortenson officials said. Most cost increases occurred in the second quarter of 2022. Some markets remained flat or showed slight decreases, following a trend from the previous quarter where regional markets reported little to no change in construction costs, officials added.

Mortenson officials said the construction cost index showed a continued slowdown for cost increases that happened over the last two years, but added they were "cautiously optimistic" as construction projects kick off and the demand for labor grows.

"Based on market data and our insights, we remain cautiously optimistic as demand for construction remains robust despite broader softness in the economy. We recommend customers remain adaptive relative to local markets, as growth in construction activity will continue to create stronger demand for labor and affect broader workforce availability for the balance of 2023," according to the report.

Milwaukee and Seattle both had a 1.1 percent increase in Q1 and Chicago had a 1 percent increase, Mortenson officials said. Phoenix saw the largest cost increase at 1.5 percent, according to the report. Denver costs decreased 0.3 percent and Minneapolis costs shrunk 0.1 percent, with Portland reporting flat costs overall for the quarter. Costs increased 4.6 percent in Portland over the last 12 months, officials noted.

(Chart courtesy of Mortenson)

Labor issues in the construction industry remain a concern as worker shortages and tight labor markets have a foothold in regional markets, Mortenson officials said. Many project teams are paying incentives to secure workforces while construction starts increase and large project teamss compete for laborers, officials added.

In the Portland-metro region, construction employment was a total of 8,500 in March, according to the U.S. Bureau of Labor Statistics. That's a 2 percent increase, or 200 jobs, compared to March 2022.

(Chart courtesy of Mortenson)

Prices for commodity-based materials such as lumber, structural steel and PVC pipe are showing signs of leveling off, officials said. However, there were still challenges with product lead times, material shortages and transportation logistics, officials added.

(Chart courtesy of Mortenson)

Recent signals from the Federal Reserve showed the cycle of rate increases may be over, although higher interest rates still weigh on both the construction sector and the broader economy, the report said. Employers continued to add jobs across Q1 despite the interest rate environment and unemployment at 3.5 percent in March.

Both inflation and interest rate increases impacted construction costs such as lumber prices decreasing by nearly 18 percent, according to the report. With lower consumer demand and import volumes comes a decrease in the cost of domestic freight, relieving supply chain pressures as capacity becomes available in tandem with slowing demand, officials noted.

Mortenson tracks seven metros: Milwaukee, Chicago, Minneapolis, Denver, Seattle, Portland and Phoenix.