Construction Costs Have Been Rising in the Metro

Construction Costs Have Been Rising in the Metro

Across the Omaha metro area, construction has been booming. However, in recent months we have been hearing that our clients are facing steadily increasing construction costs and that contractors are very busy — at times even too busy to bid on projects. We turned to our colleagues at KSI Construction, MCL Construction and Millard Lumber to learn more about the rising costs of construction in Omaha and what you should do if you are considering a construction project. We asked about the cost and availability of materials and labor as well as other factors that may be contributing.

Robert Krause and Shawn Swaney, owners of KSI Construction, estimate that the cost of construction materials has increased between 30 percent and 40 percent over the past seven years.

“Materials are more expensive across the board than they were prior to the 2008 downturn. There are spikes at times for specific products due to shortages and other factors, but I was recently looking back at some numbers from the year 2000 and we are actually at double the cost in some categories,” said Swaney.

Millard Lumber, which sells building materials to construction companies, has been seeing price increases from their mills. Brian Malone, Corporate Purchasing Manager for Millard Lumber, recently analyzed the costs of some common building materials. He reported that oriented strand board (OSB) had increased in price each week for 13 straight weeks between August and November and was predicted to continue to increase.

Bob Carlisle, co-owner of MCL Construction, has also seen an increase in the cost of construction materials.

“We try and communicate to our clients and architects that we work with that we are seeing an escalation cost of 10 percent from last year to this year and it’s going continue to go up. A lot of this is material cost, but labor costs and management fees are also increasing because of the tremendous workload across the city and state right now,” said Carlisle.

With so many large-scale projects currently underway or in the planning stages in Omaha, there is a noticeable shortage of workers in all mechanical and electrical trades, making it difficult for smaller, non-union companies to remain fully staffed for projects, according to KSI. KSI estimates that labor costs are up 15 to 20 percent due to a lack of skilled workers in the market.

“There are fewer young people entering the trades right now,” said Swaney. The shortage includes experienced construction superintendents and project managers. If construction in Omaha continues at its current levels, this shortage is expected to continue.

With demand for construction services up and a decline in skilled labor, Krause said getting subcontractors to even bid on projects has proven increasingly difficult in recent months. Where a year ago, construction companies could once expect bids within a week from subcontractors in each trade, they are now getting fewer bids returned and in longer timeframes, often two to three weeks or more. With fewer bids returned, Krause said construction companies must enter into a more thorough vetting process to determine if bids are accurate. Scheduling work also has proven more challenging. Where at one time a subcontractor could be given a week’s notice, now companies are scheduling four to five weeks out.

Swaney said that new legislation and new city codes have also affected construction costs. New requirements for energy efficiency have caused increased pricing in electrical, insulation and HVAC systems. Additionally, due to these higher required efficiencies, the utility companies are starting to charge upfront fees for bringing their services to the building.

For example, moving to LED lighting and using occupancy sensors in buildings has cut some building owners’ electrical bills by up to 60 percent.  “That lost revenue has to come from somewhere, either by increasing energy rates or charging upfront fees,” said Swaney.

Swaney said the City of Omaha has also introduced new development fees for areas such as parks and recreation, arterial street improvement and stormwater management. Swaney said that stormwater management is adding about $2 per square foot to new construction.

The increase in construction costs should not scare companies away from building. KSI recommends thoroughly vetting your architect and general contractor to ensure they will go the extra mile and provide maximum efficiency for your project.

“We could raise our rates across the board due to the climate of the market but I think that would be a quick way to silence the phones. Instead, we are becoming more efficient in our processes to reduce timelines,” said Swaney.

Carlisle agrees time is of the essence. “My advice is to lock in right now because we don’t see a time in the near future when construction costs will be decreasing.”