Many of our clients and business partners are concerned and question rising project related costs.
With an eye on market conditions we believe the greater Boston area is currently experiencing unprecedented construction activity fueled by demand in numerous sectors. High volume sector activity includes life science / pharmaceutical, predominately in east Cambridge, medical in the Longwood area, campus focused institutional work, and wide spread residential and commercial office space construction. This rising activity emerged over two years ago following the recession that dramatically impacted the industry highlighted by construction company closings, consolidations, and a reduction in the regional skilled labor pool. Current, and increasing, simultaneous demand in the market is highly taxing top general construction and sub-contract providers and has resulted in unfavorable increased labor and material costs.
Boston currently ranks third in the nation vs New York and San Francisco respectively in the city construction cost index at 118 vs the national average of 100. In addition, current Boston labor costs exceed the national average by over 30% while material costs remain slightly higher by over 10% – both are increasing.
Current predictions by leading national construction providers for the Boston market include:
- Continued growth in construction costs through 2020
- High priced labor will continue to contribute to larger than average costs
- Cost escalation will continue to increase rapidly in the range of 4.5% – 8% over the 2016-2017 timeframe
- The market will continue to be constrained by a skilled labor shortage likely resulting in schedule risk
- Material lead times will continue to extend as a result of increased demand
- The combination of high volume and required workforce expansion will result in productivity decline, increased cost, and reduced quality
Given these unfavorable market conditions we are actively working with our clients to apply downward cost pressure by focusing our efforts in the following areas:
- Schedule management to ensure aggressive competitive sub contract pricing
- Cost containment associated with change management
- Competitive procurement of remaining cost components including FF&E and IT/AV
- Review and containment of OPEX exposure
– S. Fox