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Civil construction: main factors that have inflated the costs of the sector

7/26/2023

The last 12 months have once again put the office market to the test. The easing of supply chain constraints has done little to curb the rising costs and material delays that continue to plague the construction industry.

Inflationary pressures such as rising labor costs have also hit the sector. In addition, economic uncertainties and rising interest rates are putting some construction projects on shaky ground.

Cushman & Wakefield has gathered information from 45 cities in 9 countries across the Americas in its Guide Cost to help occupiers define their capital planning and relocation budgets.

Below are the main conclusions of the guide:

Supply chain restrictions ease but still above normal
Global supply chain stress levels have eased from their 2022 highs, but remain above 2019 pre-pandemic levels.
Additionally, the Supplier Delivery Index, which measures manufacturer delays, shows that delay has steadily decreased since mid-2021. Since February 2023, supplier deliveries to manufacturers have been much faster, 50% down from 2021.

Even so, the average delivery time for switchgear equipment, for example, one of the most requested in civil construction, continues to be significantly long, an average of 12 to 18 months .
Despite this, a recent sentiment survey conducted by Cushman & Wakefield of 72 general contractors (GCs) points to rising expectations that some of these challenges may be receding.

• 11% of respondents expect material delivery times to slightly decrease in 2023. This is a significant sign of improvement in sentiment since 2022, when not one of the respondents expected a decrease;
• 58% of those interviewed expect the work execution time to remain unchanged in 2023 - also an improvement compared to 2022, when only 25% believed that there would be no change

Commodity cost volatility may be easing
Although still high, total construction costs are decreasing while labor costs have increased.

In 2022, copper and wood prices fell and may finally level off in 2024. Also, steel prices may fall sooner.
60% of general contractors polled expect a price increase from suppliers in the next 6 months, but that's down from 87% who expected it last year.

The flight to quality movement should drive demand
Creating spaces that appeal to employees remains key for occupiers and owners alike. Offices located in class A and A+ buildings are well positioned to meet this demand for dynamic workspaces, while older offices will need to adapt their spaces to become competitive.

Growth despite challenges
While new office building remains slow as the industry faces challenges, particularly economic uncertainty, renovations to current offices will continue to increase as owners and occupiers look to update the spaces they occupy.

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