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Recent gains in planning activity and construction starts have done little to ease concerns about rising costs, according to industry reactions to the latest batch of construction economic reports.
The data showed signs of momentum across parts of the construction industry. In addition to strong planning and groundbreaking activity, construction backlog also reached a 10-month high in April.
Yet, despite that flurry of construction plans, Adam Raimond, program manager at Gordian, a Greenville, South Carolina-based construction data provider, still expects a higher cost environment in the backdrop.
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“My overall takeaway from these reports is that the trends that started to be established in the previous couple months are continuing to persist,” Raimond told Construction Dive. “Not much is really bucking the overall narrative trends in the economy. Data center growth is high, all other areas are tepid and global conflicts are a leading reason for higher input costs.”
Rising construction input costs remain one of the industry’s key challenges. Input prices climbed again in April and May, largely due to energy and tariff-sensitive materials.
“Estimators should hope that the persistent trend in input costs rising does not continue much longer,” said Raimond. “Depending on the reporting source, material input costs are reportedly up 4% to 7% since the start of the year.”
Much of the material price jumps stem from metals and lumber, though rising fuel and transportation costs are starting to push other input prices higher, added Raimond.
“It’s looking unlikely at this point that most costs will reverse,” he said. “But if there’s fuel price relief, then that could at least slow the rise of other inputs such as drywall or concrete.”
Contractors keep pushing dirt
Still, developers appear increasingly willing to break ground despite higher costs, said Ermengarde Jabir, director of commercial real estate research at New York City-based Moody’s.
“The latest data suggests that developers and investors are understanding that the present broader macro headwinds are simply the environment in which they must operate for the time being,” said Jabir. “There’s a bit more movement on the nonresidential construction front.”
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That’s especially true for ancillary projects around artificial intelligence builds, said Juan Arias, national director of U.S. industrial analytics at CoStar, an Arlington, Virginia-based commercial real estate services firm.
“The data center buildout is also driving demand for space from companies tied to related infrastructure. We have seen healthy leasing activity from tenants in the electrical component and equipment manufacturing,” said Arias. “This will continue to drive healthy construction spending towards related infrastructure.”
Nevertheless, Arias warned the next challenge will be whether communities and utilities can keep pace with the industry’s growth.
“While demand for data centers is impressive, community pushback and infrastructure constraints around power and water are headwinds that will continue to intensify in the coming months,” said Arias.
Jabir echoed those concerns. She also pointed to both power availability and local resistance as major risks in the future.
“Because the lion’s share of this activity is focused on data centers, it is important to keep potential oversupply risk in mind in the short-term, especially given how rapidly technology and demand are evolving,” said Jabir. “Over the long-term, potential municipal pushback on data center construction and access to the requisite power for operating a data center are two headwinds to keep in mind.”