A perfect storm of high construction demands, increasing labor and materials costs, labor shortages, supply chain interruptions, inflation, lessening COVID restrictions, and the war in Ukraine have combined to affect the factors that ultimately help determine 2022 property valuations. Let’s take a closer look at these trends and where they’re headed for 2023 and beyond.
The 2022 Construction Cost index from Coldwell Banker Richard Ellis (CBRE) predicts that by the end of 2022, we’ll see a 14.1% year-over-year increase in construction costs due to labor and material costs increases. The organization expects this will stabilize back to historic averages (the 2%-4% range) over the next two years. These increased constructions costs are currently being reflected in what we at AssetWorks are seeing through our appraisals.
CBRE‘s report predicts labor shortages will continue due to increasing wage pressures. With national construction wages lagging throughout the pandemic and an increasing demand for new construction projects due to lessened COVID restrictions, construction wages are expected to increase, as well. Whether contractors pass along these input costs, and by how much, depends on rising interest rates, economic uncertainty and whether projects are canceled or delayed due to input pricing. At AssetWorks, we do see an increase in customers’ labor costs and consistent construction demand.
CBRE estimates that by the end of 2022, materials cost inflation will begin to decrease and by mid-2023, overall it should return to normal levels. Geopolitical risks like tariffs and sanctions may still mean some material costs continue to be affected, though. Material costs do remain elevated in the cost documents our AssetWorks experts receive from clients.
Supply Chain Interruptions
While CBRE expects supply chain interruptions to be less frequent, production capabilities and logistics may still create longer lead times and materials shortages in the short-term.
Valuation Trending that Mitigates Risk and Keeps You Current
AssetWorks trends property valuations using a variety of asset, infrastructure, and construction indexes including: the United States Department of Labor Producer Price Index (PPI), the RS Means Construction Cost Indexes, the Civil Works Construction Cost Index System, the Bureau of Reclamation Construction Cost Trends, the American City & County Municipal Cost Index, and Marshall and Swift’s Marshall Valuation Service Construction Cost Multipliers.