According to Mortenson's Construction Cost Index, nonresidential construction costs should increase 3% to 4% on average in 2016. Despite the projected cost increase, Mortenson's analysis concludes all the markets studied are healthy. Structural steel and steel framing are just two components that could see cost increases of 3.5% to 4% this year.
(more on Mortenson's forecasted construction cost increases...)
The Mortenson Construction Cost Index analyzes six major markets: Chicago, Denver, Milwaukee, Minneapolis, Phoenix and Seattle.
Chicago's overall construction cost index increased 4.6% throughout 2015, but growth flattened in the last half of the year. Chicago's construction employment growth has also slowed. Mortenson forecasts the Chicago market should expect cost increases of 3.5% to 4% for 2016.
Like Chicago, Denver's construction cost index also increased throughout 2015 ending 4.2% higher than the previous year. While Denver's construction employment trends have plateaued, the local cost index continues to expand, and Mortenson forecasts a 4% increase in construction costs for both 2016 and 2017 in the Denver Market.
Milwaukee, WI, construction index values were flat over the second half of 2015 with the cost index values increasing just about 1% in the past year. The Milwaukee market has seen increases in many building components, but a flat construction cost index and flat construction employment growth led Mortenson to predict a 3% to 4% increase in project costs for 2016.
Despite a small dip at the end of 2015, the Minneapolis cost index rose 2.1% in 2015. Strong market growth in 2014 and 2015 has begun to level out, and Mortenson forecasts a 3% to 3.5% cost increase for the Minneapolis market.
The Phoenix cost index has been growing, ending 2015 2.8% points above where it was the previous year. A rebound in the Phoenix construction market in 2015 and upward trends in its construction employment show a market that is gaining traction and a possible 3% rise in project costs for 2016, according to Mortenson.
Finally, Seattle's cost index is steadily outpacing the national index growth placing Seattle's 2015 index 3.6% higher than it was the previous year. Double-digit construction employment growth is starting to show signs of weakening. Mortenson predicts the Seattle market will continue to see moderate cost increases with increased construction activity and a 3.5% to 4.5% increase in project costs for 2016.
