Current reports show the escalation of construction cost has ended and contraction has already begun. Commercial building construction costs decreased 5.77 percent in the first quarter of 2009 compared with the fourth quarter of 2008, according to Turner Construction Company. From the same report, construction costs have dropped 2.59 percent since the first quarter of 2008. Thus it can be inferred from this data that the inflection has occurred some time in 2009, and costs continue to decrease.
This continued decrease in construction cost will certainly improve both the level of and length of time for a return on investment in a capital project. Taking into effect of the continued decline, and the time required to bring a project to fruition, it is truly “Time to Plan“.
When the world recovers from the current economic conditions what will the “Headlines” read? What will be some of the back story to the conditions at the time recovery is reported? If anyone really had the answers to these questions I am sure we would start to see the articles today.
Hopefully these stories will be full of lessons learned and checks and balances that will inhibit the chances of it happening again. Hopefully the stories will talk of a new economy based on sustainable financial mechanisms and moderated growth.
What these stories will certainly contain is reports of lower costs of construction and examples of forward thinking businesses who took advantage of the economic adjustments and the lower costs of construction resulting from the downturn. As recent as 6 months ago the cost of construction was still expanding and the refrain being heard was “How can this continue?”, “How can the industry continue to absorb the double digit increase in material costs?”. The answer to these questions is now being realized. It could not be sustained.
Please see the original article “Index: Construction costs continue to drop” that motivated these thoughts.
– Todd Heirls