Accompanying this report are tables based on RSMeans’ measures of dollar-per-square-foot construction costs.
This month, results are show for four categories of office buildings.
The first three are typical office buildings with varying story heights.
These are the types of structures with occupants from the FIRE (finance, insurance and real estate) and professional services (e.g., legal, accounting, architectural and advertising) sectors.
The fourth is a medical office building.
Ranking by expense
Most expensive to build – on a dollar-per-square-footage basis – is a medical office building. The mark-up is significant.
For example, the charge for a medical building in New York is over $300 per square foot.
The specialized features that go into a medical building – i.e., leaving it only a step or two down from a hospital – can drive its costs up 25% to 33% versus a standard office building.
For a more typical office structure, the cost of construction – on a dollars-per-square footage basis – drops with story height.
In other words, it’s relatively cheaper to build a two-to-four story office building than one that’s five to ten stories.
Likewise, an 11-to-20 story office building costs less per square foot than lower-rise facilities.
Comparisons with other types of structure
According to RSMeans, the cheapest types of structure to build, after extremely low-cost parking garages, are factories and warehouses.
A convenience store also belongs in this low-expense grouping.
Department stores and movie theatres are a little pricier.
In the mid-range for construction costs are nursing homes, office buildings, hotels and high-rise apartment buildings.
In the latter three categories, heights above ten stories tend to lower the dollar-per-square-footage cost.
Also in the mid-range for construction costs are elementary and secondary schools, along with institutions of higher learning.
By far the most expensive types of structure to build are hospitals, jails/prisons, courthouses and police stations.
Some of the foregoing institutional building categories exceed $350 per square foot in the largest urban centers.
In New York, for example, the cost of a low-rise hospital exceeds $400 per square foot.
New York is the most expensive; cities in the South are least expensive
New York has the highest dollar-per-square-foot construction costs in the country.
San Francisco, Boston, Chicago and Philadelphia hold the other four positions in the Top Five among major U.S. urban centers.
Relatively low-cost cities are mainly in the southeast and south-central. Included are Miami, Atlanta, Phoenix, New Orleans, Houston, Dallas and Winston-Salem.
Kansas City, Detroit, San Diego, St. Louis, Pittsburgh, Portland and Cleveland are situated in the middle among the 25 cities set out in the tables.
Washington, Denver and Baltimore are in the low mid-range.
Minneapolis is the nation’s sixth most expensive construction-cost city. Los Angeles and Seattle on the West-Coast are in the upper mid-range.
Along the Pacific shoreline, dollar-per-square foot construction costs in Los Angeles, Seattle and San Diego are between 13% and 17% lower than in high-cost San Francisco.
Portland is nearly one-fifth (-19%) less expensive than the City by the Bay for building projects.
Some other city comparisons
In some other city comparisons, it costs 32% more to build in Chicago than in Atlanta and there is a 27% differential between higher-cost Philadelphia and lower-cost Miami.
The mark-up in New York, the most expensive city among the 25 shown, and Winston-Salem N.C., the least expensive, is nearly three-quarters (+74%).
Year over year construction costs
In the latest survey, RSMeans altered the design specifications for its 11-to-20 story office building model.
Therefore, it’s not valid to compare prices on a year-over-year basis for that one category. The percentage change would be affected by more than just cost trends.
In the other three categories, the year-over-year average percentage change for the 25 cities ranged from +4.2% for a medical building to +5.7% for a two-to-four story office building.
By way of comparison, the current rate of inflation in the United States is +3.0%. That was December’s year-over-year increase in the all-items Consumer Price Index (CPI).
The run-up in construction costs, year-over-year is currently exceeding the change in the overall price level in the country.
The competition for commodities (e.g., steel) in some other segments of the economy (e.g., automotive products; construction and agricultural machinery and equipment) is playing a role.
From highest to lowest, New Orleans, Kansas City, Baltimore and Pittsburgh ranked numbers one through four with respect to for year-over-year cost increases among the 25 cities in the latest month.
Atlanta, Winston-Salem, Washington, Denver, Detroit and Phoenix formed the next rung on the ranking ladder.
Cities with the lowest rates of construction cost increases were Minneapolis, Cleveland, San Diego, Seattle, Houston, Philadelphia and New York City.
The outlook for construction costs
On the materials side of construction costs, a bellwether commodity is oil. Unlike many other raw materials, which have pulled back somewhat, the world price of oil has stayed high.
One primary reason is a risk premium on account of continuing turmoil in the Middle East. Syria has been nearly paralyzed by internal fighting and there are rising tensions between Iran and Israel over the former’s aspirations for nuclear weaponry.
For many other commodities, the price has eased. The ongoing European debt crisis has lowered expectations for Asian Pacific export sales and output growth.
It should be noted, however, that there are indications Europe is straightening out some of its problems. The European Central Bank is becoming more involved in buying debt, the stabilization fund is being topped up and establishment of a fiscal union is in the works.
Lumber prices will depend on how quickly the U.S. housing market improves. That’s a process that is slowly getting underway. It’s beginning in multi-unit rental properties.
Steel prices have demonstrated in the past that they can be highly volatile. Demand from emerging nations certainly plays a key role. But so do input costs. It’s important to keep an eye on what’s happening in scrap, iron and metallurgical coal markets.
Canadian non-residential building construction costs in 2011’s fourth quarter were +4.1% year over year. In December, the structural steel shapes sub-index in the Industrial Products Price Index series from Statistics Canada was +11.3%.
On the labor side of construction costs, change will be muted until there is a well-defined pick-up in homebuilding activity. The unemployment rate in construction in December was a still high 16%.
Finally, the U.S. economy is performing better than most analysts had been expecting last fall. Employment in some key sectors is on a well-defined upswing.Construction, while lagging, will still receive a boost from the generally more optimistic outlook, as long as there are no extraneous bad-luck shocks (e.g., the Japanese tsunami) as occurred early in 2011.
|office building (2 to 4 stories)||office building (5 to 10 stories)|
|2012||2011||% Change||2012||2011||% Change|
|15||NEW YORK CITY||243.98||231.89||5.2%||233.27||223.77||4.2%|
|office building (11 to 20 stories)||medical office building|
|2012||2011||% Change||2012||2011||% Change|
|15||NEW YORK CITY||228.24||200.10||n/a||302.94||292.20||3.7%|