CONSTRUCTION MARKET INSIGHT Providing Certainty During Uncertain Times AUG 2022
CONSTRUCTION MARKET INSIGHT
MARKET UPDATE IN THE CAROLINAS KEYS TO SUCCESS
Our market insight report incorporates information from industry partners, historical cost data, and numerous reliable local and national publications and sources. There are fierce debates over what the next year holds, but it seems as though escalation will slow, and developments and projects will have a brief pause before picking back up in late 2022 and early 2023. North Carolina will remain a hub for growth; meanwhile, labor shortages will continue to impact the construction industry.
The construction market is changing and evolving at a pace not seen since the World Wars. We continually monitor the ever-changing conditions and leverage our trusted industry partner relationships. Our goal is to be a resource to provide certainty to our clients and partners during these uncertain times.
Global energy demands have impacted every stage of the supply chain bringing even more uncertainty to an already troubled supply chain, but not all news is bad news. Some trades have started to see a leveling off of escalation and improvements to lead times.
OPEN, COMMUNICATIONHONESTENGAGEMENTATCONCEPTUALSTAGE SUBCONTRACTORTRANSPARENCYFULLTRUSTEDRELATIONSHIPS MANUFACTURERSUPDATESAPPROACHESCREATIVECONSTANTFROM&VENDORS
* Information provided is gathered from outside sources and based on national data. Sources include Catalyst Surety Partners, US Census Bureau, Turner Construction, Associated General Contractors of America (AGC), Engineering News-Record (ENR), US Bureau of Labor, The American Institute of Architects (AIA), and Associated Builders and Contractors (ABC).
The Russia-Ukraine war has dominated headlines, and rising interest rates have stifled economic progress. Russia supplies much of the world with fuel (petroleum and coal), copper, and iron, while Ukraine exports a significant amount of lumber.
US CONSTRUCTION SPENDING US CONSTRUCTION SPENDING BY TYPE % CHANGE JUNE 2022 FROM JUNE 2021 DRIVERS FOR HEADLINE SECTORS SECTOR SHORT-TERM DRIVERS LONG-TERM DRIVERS RESIDENTIALNON» Output trends in relevant sector » Population trends » Capacity utilization » Borrowing costs » Employment in relevant sector » Disposable income » Output trends in relevant sector » Employment in relevant sector RESIDENTIAL » Unemployment rate » Household liabilities » Mortgage interest rates » House prices » Population trends » House prices » Incomes +8.3% +10.4% +1.2%+0.4% CONSTRUCTION MARKET INSIGHT CONSTRUCTIONUS SPENDING Construction spending during June 2022 was estimated at $1,762.3 billion, 1.1% below the revised May estimate. During the first six months of this year, construction spending is 10.7% above the same period in 2021. US Census Bureau June 2022 $1,762.3 B JUNE 2022 $1,627.9 B JUNE 2021 US Census Bureau ALL PUBLIC PRIVATE NON-RES 10%0%5%15% US Census Bureau US CONSTRUCTION SPENDING BY SUB-TYPE % CHANGE JUNE 2022 FROM JUNE 2021 -7.4% -1.3% -1.3% -0.6% +20.3%-12.5%+10.5% +4.4% LODGING OFFICECOMMERCIALHEALTHCAREEDUCATIONALRELIGIOUSMANUFACTURING POWER -20%-10%20%10%0% US Census Bureau
JULY 2022 VS. JULY 2021 CONSTRUCTION MARKET INSIGHT CONSTRUCTIONUS COSTINDEX In the past six months, building costs, material costs, and common labor costs have declined driving total construction costs down by 0.4%. Skilled labor costs have increased by 0.7% and are likely to continue to escalate in 2022 based on low construction unemployment and continued high demand. Engineering News-RecordJuly(ENR)2022 CommonBuildingConstructionTotalCostsCostsMaterialCostsSkilledLaborCostsLaborCosts +1.3%+7.6%+3.3% +13.5% +27.9% 0% 5% 10% 15% 20% 25% 30% (-0.4) (-0.4) (-5.8) (+0.7) (-0.1) (6-month net change)
CONSTRUCTION MARKET INSIGHT UNEMPLOYMENTCONSTRUCTION The current construction unemployment rate of 3.7% is 1.3% lower than reported in December 2021. A rating under 4.0% has only been reported nine other times since 2000, most of which were in 2018 and 2019. The labor market in the Southeast continues to remain tight and is expected to continue driving labor rates higher through the remainder of 2022. US Bureau of Labor Statistics June 2022 3.7% UNEMPLOYMENTCONSTRUCTION
The
Architecture
Index (ABI)June2022 52.5 IndustrialCommercial/ 53.5 Institutional 51.5 South Region 58.2 New InquiryProject 53.2 (ABI)BILLINGSARCHITECTUREINDEX
BELOW50ABOVE50 CONSTRUCTION MARKET INSIGHT BILLINGSARCHITECTUREINDEX
The
An index value > 50 represents that architects have reported more activity for that particular metric than the prior month. These metrics are leading indicators as the Architecture Billing Index (ABI) reflects projects in design that will enter the construction phase in 9 to 12 months and the New Project Inquiry Index (NPII) reflects new project demand from owners to potentially enter the design phase. metrics reported by the AIA indicate continued demand based on architectural billings across the country. The South Region is starting to experience a slight decline due to rising interest rates, while other regions continue to report increases. However, local, Carolina-based architecture firms have indicated continued open positions and trouble staffing to support new projects. American Institute of Architects (AIA) Billings
CONSTRUCTION MARKET INSIGHT CONSTRUCTION BACKLOG BACKLOG BY REGION (6-month net change) BACKLOG BY INDUSTRY (6-month net change) BACKLOG BY COMPANY REVENUE (6-month net change) 10.0South MONTHS 9.0West MONTHS Northeast8.2 MONTHS Midwest8.3 MONTHS The current national average construction backlog is up 0.4% since June 2021 at 8.9 months. The South Region backlog continues to trend above the national average reflecting continued growth in the construction market. Commercial/institutional and infrastructure construction are trending up in the past six months, while heavy industrial construction has leveled off and remains steady. Associated Builders and Contractors, Inc. (ABC) Backlog Indicator June 2022 9.4 MONTHS(+0.9) InstitutionalCommercial/ 7.7 MONTHS(0.0) Heavy Industrial 7.9 MONTHS(+0.6) Infrastructure >$100M<$30M$30-$50M$50-$100M 8.08.68.5 13.6MONTHS(+1.0)(+0.1) (+0.7) (+1.0) (+0.6) (+0.3)(-2.8) (+2.9)
INDUSTRY TRENDS & INSIGHTS
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Ongoing international conflict has caused fuel surcharges and transportation costs to increase driving total construction costs higher in tandem with cost increases seen from lingering impacts of the global pandemic Gas price hikes have also driven per diem rates higher due to increasing travel and hotel costs Manufacturers are facing raw material shortages impacting the overall supply chain and creating unpredictability in the construction industry It is highly recommended to purchase long lead time materials in advance to mitigate schedule delays and rising costs which are expected to continue through the remainder of 2022 alternate options that are readily available to avoid schedule delays and competition for skilled labor continues to escalate labor costs across all trades
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Rebar prices have increased rapidly peaking at $1,850/TN but recently have declined to $1,750/TN Rebar suppliers now will only hold pricing for 15 days Concrete pricing is escalating but more predictable Concrete must be ordered a week in advance rather than a day ahead of time as usual Concrete suppliers have been hit with cement allocations which is creating a strain on the supply chain Limited quantities of commercial (CDL) drivers and restrictions on work hours are limiting deliveries
INDUSTRY TRENDS & INSIGHTS In the Carolinas as of July 2022 COMMON THEMES »
» Inflation
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CONSTRUCTION MARKET INSIGHT EARTHWORK & DEMOLITION » Items related to storm, water, sewer, fittings, and valves remain volatile – ductile iron pipe and PVC are being hit the hardest with 50% escalation and lead times as long as 14 months » Current lead times for ductile iron pipe are over 365 days, mechanical joint fittings and restraints are up to 24 weeks, and gate valves and fire hydrants are from 32-40 weeks » With increased development, it is prudent to schedule earthwork early to ensure equipment and crews are available » Hauling vendors have increased close to 20% » Disposal site prices have increased $18-$20/load CONCRETE »
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Over the past 6 months, labor costs have increased 20-30% – this trend will continue throughout 2022
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» Select stock (on the shelf) materials when possible
» Laminates have been sporadic to acquire
» Another price increase is possible come September/ October
» Clear white maple wood made in Ukraine is unavailable due to the Russia-Ukraine war
» Roofing material costs have already increased by 10-30%
» Some non-snag and self-leveling sealants my take up to 30 weeks to procure
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» In June, flat glass saw an unexpected price increase of 40% which is significantly higher than the prior 12-15% escalation
» Grey block and mortar continue to be readily available
» Raw woods have a fragile supply chain
» Stick to standard colors and finishes as specialties are nearly impossible to get
» Install costs are up locally to 20-30%
» During hurricane season, a weather event or manufacturing problem could have an additional impact on lead times
Lightweight insulated concrete and modified roofing have been trending up in utilization
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» To lock in pricing, flat glass materials had to be ordered by July 1 and delivered to the site by December 31 – this is likely to lead to a glass shortage in the next 3-6 months
» Overworked shops have resulted in product delays of 16+ weeks and averaging at 20 weeks
» Current production rates have minimal amounts of materials being made for inventory resulting in extremely low stock
» Lead times are typically an additional 12+ weeks at the moment
On average, doors, frames, and hardware have increased in cost an average of approx. 25% due to fuel surcharges and increases in materials
ROOFING
» Core materials for veneers or metals are available
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CONSTRUCTION MARKET INSIGHT INDUSTRY TRENDS & INSIGHTS In the Carolinas as of July 2022 STEEL & MISCELLANEOUS METALS » Materials have remained stable in the past 6 months with no recent increases and some have even gone down » Steel is available but stainless steel is not » Joists are still sold out for the year until Q2 2023 » Decking has a 4-5 month lead time » Certain aluminums have been more challenging to acquire » A recent plant explosion is causing a shortage of primer paint for steel » Most supply chain issues have been resolved, however, international tariffs continue to drive raw material increases » 2022 cost escalations will likely be due to wage scale and freight increases » Shop drawings now take up to 6 weeks – 2 weeks was typical previously ALUMINUM COMPOSITE MATERIAL (ACM) PANELS » ACM panel prices have increased to and average of 25-30% » Labor and equipment have only increased slightly at approx. 2-5% » Mineral wool insulation lead time has increased by 6 months »
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» Lead times for brick have increased by 30-40%
» Further price increases are anticipated in the fall but there is uncertainty on how much higher they will go up
DOORS, FRAMES & HARDWARE
Electrified hardware currently has a 25-28 week lead time
» To control capacity, fabrication shops are either turning down more work than they have in the past or setting higher minimum thresholds
» Total glass system wall partitions has increased in cost by 5% in the last quarter bringing the total increase to 15% year to date
» Labor for factories/manufacturers will continue to be an issue through 2022
MILLWORK & LAB CASEWORK
Emerging products include ACM panel dry joint rainscreen systems without the need for sub-grits which helps keep material, equipment, and install labor costs down A growing number of projects using Longboard architectural products and the dry joint rainscreen system have a very short lead time of 2-4 weeks Items increasing in popularity include green screens for vertical plant walls and facadeTek plate metal panels and insulated panels
MASONRY Materials have increased by 5-10% every 6 months
» Quarterly roofing material price increases are anticipated to be in the 7-10% range
GLASS/GLAZING
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» Quarantines
PAINT
» Labor force shortages and the demand for higher pay are driving labor wages up
» Considering alternate options may help but is typically challenging
CONSTRUCTION MARKET INSIGHT INDUSTRY TRENDS & INSIGHTS In the Carolinas as of July 2022 FRAMING, WALL BOARD & ACT » Metal framing pricing has leveled out and is even beginning to decline » Non-structural metal stud production has caught back up to the demand and lead times are close to returning to pre-Covid times » Sheetrock is still turbulent and continues to rise with an additional 10-20% forecasted before the end of the year » Lumber material prices have decreased 40% over the last 6 months » The use of digital layout technology is creating efficiencies and reducing errors » Coal ash and latex availability are going to seriously impact drywall and joint compound for the foreseeable future – this is likely to be the largest disruptor in 2022 HARD TILE »
» Labor and logistics continue to be an issue
Hard tile has increased 5-10% with shipping costs accounting for 2-3% of this increase domestic products when ever possible overseas shipping time and cost is drastically extended and very unpredictable acrylic grouts instead of epoxy for any applications other than true industrial and heavy traffic areas overseas are mostly lifted but stone suppliers are still catching up with delays Lead times are still fluctuating but overall are improving
» Emerging trends include paint products with sanitizing technology and options that are manufactured to remove 99.9% of bacteria, including Staph and E. Coli, within 2 hours of exposure for healthcare and senior living facilities
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» Loading dock steel materials have lead times at 25+ weeks
» Coiling door manufacturers are maintaining 12-14 week lead times using largely steel products
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FIRE PROTECTION
» Additional cost for fabrication has occurred due to current demands
» Material and equipment pricing is increasing monthly with some piping costs changing daily
» Fire pumps and equipment have lead times approaching 1 year HVAC
» Lead times for split systems are 8-10 weeks; RTUs are 20-22 weeks; and electric heaters are 11-12 weeks
» Since the onset of Covid, these emerging trends have expanded to other markets as well
» Labor costs have increased 35% in the past 6 months
FLOORING » Flooring has increased 8-30% over the last couple months (coupled with price increases earlier in the year) There are extended and/or delayed lead times on materials from overseas – focus has shifted to producing domestic goods instead Epoxies and urethanes have a 8-10 week lead time
» Utilize
» There are issues with adhesive shortages (mainly the raw materials) along with thinsets
» Paint material costs alone have increased by an average of 8% with another increase of approx. 4% anticipated in the next quarter for both paint and wallcovering
» Electronic chip shortages continue to impact controls components » Labor costs are up 5%
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» Lead times on air distribution and VAV boxes are fairly consistent
» Collaborate to find products that are in stock to suit customer needs or order materials well ahead of time
» Over the past 6 months, inventories have been depleted due to shortages in raw materials and labor availability to make materials
ROLLING/OVERHEAD DOORS
» Utilize
» Aluminum products are experiencing the largest price increases
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ELECTRICAL »
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Predictions show metal prices stabilizing but PVC continues to escalate Electrical gear has increased by 30% in the past 6 months; Light fixture prices have increased 6-10% Miscellaneous items, like surface raceways and floor boxes, have increased across the board 5-15% Basic electrical materials, like pipe and wire, saw a substantial increase approx. 3 months ago and now is slowly decreasing Conduit is about 9-10% more than a year ago Copper is stabilizing close to where it was a year ago Switchgear lead times are running close to a year; larger panels are 18-20 weeks; and smaller panels are 6-8 weeks Gear factories have the capability to run multiple shifts to keep up with demand, but with current material shortages they are not able to do so Labor costs have escalated roughly 5%
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INDUSTRY TRENDS & INSIGHTS In the Carolinas as of July 2022
CONSTRUCTION MARKET INSIGHT PLUMBING » PVC and copper have been increasing on average by 6-7% each month and remain volatile » Drinking fountains, bottle fillers, and sensor faucets are currently experiencing long lead times but factories are working to catchup to demand » There is a shortage of PVC fittings (6” and above are hard to find) » Vendors are predicting that water heaters and fiberglass showers will experience supply issues due to a shortage in raw materials » Cast iron is still readily available and can be used in lieu of PVC with a potential cost increase – it is highly recommended to get approval quickly and buy material early to avoid delays »
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MATERIALSRAW MANUFACTURER RETAILER CUSTOMER SUPPLIERS DISTRIBUTION INSTALLER ~50% cost valuemultiplechainssupply gas price hikescargo logjamsnaturalshortagesresource natural disasters ongoingCovid-relatedaffects internationalconflictworkforceshortages carrierconstraintscapacity&delays increasingratesinterest Immediately Daily Weekly Monthly Quarterly Bi-Annually LATENTCURRENTDELAYSESCALATIONIMPACTS CONSTRUCTION MARKET INSIGHT SUPPLY INSIGHTSCHAIN
barringerconstruction.com CHARLOTTE Nathaniel Smith T 704.337.2881 M nathaniel.smith@barringerconstruction.com919.696.8665 Please contact us if you have questions or would like to use Barringer as a resource RALEIGH Kevin Mertens T 919.307.2880 M kevin.mertens@barringerconstruction.com919.648.5070 ASHEVILLE Daniel Smith T 828.579.3715 M daniel.smith@barringerconstruction.com704.323.9614