Construction Costs Could Decline By End of 2020

One of the area’s largest general contractors is projecting that construction costs could decline through 2020, following a decade of growth. The cost of construction is one of the largest inhibitors of real estate development in Milwaukee.

Mortenson Construction reported that construction costs have been relatively flat in the Milwaukee market as well as nationally through the first half of 2020.

Construction employment, despite the pandemic, actually increased in Milwaukee through the first half of 2020. The firm attributes this to the number of projects currently underway. “Looking ahead, we expect construction employment will hold steady or decrease over the remainder of the year,” says the company in its quarterly analysis.

Mortenson reports that construction employment in Milwaukee grew one percent in 2019 and two percent in 2020. The increases follow six straight years of increases of three percent of more. Employment has increased every year since 2013.

The firm’s cost index measurement shows construction costs in Milwaukee growing from a value of 97 in 2009 to 132 in 2020. The firm benchmarks the country as a whole going from 94 to 136 at the same time. Costs are up one percent in Milwaukee in the past year and 1.5 percent nationally.

How has the pandemic impacted things? “Wage increases from previously-negotiated collective bargaining agreements, productivity losses caused by new COVID-19-related procedures, and supply chain disruptions due to governmental orders were offset by a more competitive atmosphere,” says the report. “While earlier tariff-driven disruptions are largely resolved and the most recent employment numbers remain healthy, the current economic uncertainty has caused our industry to take pause and proceed carefully.”

The report used bold for the key takeaway. “We anticipate the potential for a reduction in construction costs through the remainder of 2020,” concludes the advice for building owners section.

Costs for three building materials declined in the past quarter, structural steel & metal decking (-2.1 percent), asphalt paving (-2.5 percent) and steel doors & frames (-2.5%).

Prices rose for four materials, steel framing/stair erection (5.6%), floor & wall tile (2.1%), gypsum board systems (1.6%) and electrical systems (1.3%). All other components (14 percent of the index) reported no change.

Mortenson has led the construction of a number of projects in the Milwaukee area in recent years, including Fiserv Forum, Diercks Hall at the Milwaukee School of Engineering and the Athletic and Human Performance Research Center at Marquette University.

The firm is headquartered in Minneapolis, but maintains a regional office in the Honey Creek Corporate Center on Milwaukee’s west side.