Our preconstruction and estimating team has broken down the main cost drivers for buildings into five primary factors. In past years, Sellen has focused solely on the first factor, cost escalation for labor and materials; however, in doing so we are missing out on some of the major drivers that need to factor into the overall equation. These five variables will drive costs in 2020 as our industry prepares for the anticipated 2021-2023 construction boom.
Escalation for labor and materials costs is a driving factor for buildings and must be taken into account. In 2018, we saw labor costs rise by 5 to 6 percent in key union trades. While copper, lumber and diesel fuel prices may lower slightly, the pricing of most materials are increasing. Many pricing changes will depend on external or macro-economic forces, such as tariffs. For our full list of labor and material predictions, click here.
Labor resources are currently and will continue to be a challenge as subcontractors remain busy and their options numerous. As competent and available resources are scarce, the resulting increase in cost, tied primarily to decreased productivity and/or opportunity cost, will continue to be a major cost driver. Of all the variables, this is the hardest to predict and has the highest potential to affect overall building costs.
We simply don’t build the same buildings that we built five to 10 years ago. In the Northwest specifically, employers are using new workspaces as a differentiator in the competition for talent. The resulting expectations and unique results are highly dynamic and can dramatically affect a building’s cost from year to year. This variable is difficult to quantify, as it is based on ever-changing expectations, but worth paying attention to as the war for talent transitions to the built environment.
Building codes are one of the biggest drivers of costs. Last year, Sellen released a white paper with the results of research we undertook with PAE Engineers and MacDonald-Miller about the 2015 Seattle Energy Code. In the past year since the final amendments of this code were adopted, we have been updating our research and the white paper as new information rolls in. If you’re planning on building a high-rise office, residential tower or tenant improvement in Seattle in the near future, check out our white paper to learn how different mechanical systems and glazing solutions affect costs while meeting the code.
Washington State will enact a new energy code in 2020. While less aggressive than the City of Seattle, owners will feel its impact on costs. We’re currently monitoring how those changes might manifest themselves.
There are changes to the structural codes, as well. In November 2018, the Washington State Building Code Council codified additional options for using mass timber and made those changes retroactively applicable to the current 2015 State Building Code. With conditions, these changes allow for additional building height and create new construction types for mass timber up to 270-feet tall, distinct from the heavy timber classification.
Cost drivers on a global scale include expansion and recession, currencies, commodities, capital flows, etc. Capital flows may distort land values to such a degree that property values may not be economically viable. Volatility related to foreign investment, whether Chinese or Canadian investment, is increasing and will continue to be a unique part of the real estate landscape in the Northwest.
Cost drivers on a global scale include expansion and recession, currencies, commodities, capital flows, etc. Capital flows may distort land values to such a degree that property values may not be economically valuable. Volatility related to foreign investment, whether Chinese or Canadian investment, is increasing and will continue to be a unique part of the real estate landscape in the Northwest.
|Category||Ease Of Quantification||Predictability||Degree Of Variability||Effect On Overall Building Cost|
|Labor & Materials||Relatively Easy||Somewhat Predictable||Low to Medium||2%-6%|
|Industry Capacity||Hard||Next to Impossible||High||(5%)-10%|
|Evolution of the Built Environment||Very Hard||Somewhat Predictable||Low to High||0%-10%|
|Macro-Economic Factors||Some Easy/Some Hard||Hard to Predict||Low||?|