Accompanying this report are tables and graphs based on RSMeans’ measures of dollar-per-square-foot construction costs.
This month’s results are for four accommodation-type buildings – a four-to-seven story hotel, an eight-to-24 story hotel, a two-to-three story motel and a four-to-seven story apartment building.
Ranking by expense
Most expensive to build – on a dollar-per-square-footage basis – is an eight-to-24 story hotel.
It’s about 10% to 15% more expensive to build than either a low-rise hotel, four to seven stories, or an apartment building that’s four to seven stories.
Cheapest to build, although not by as much as one might assume, is a two-to-three story motel.
The drop from a high-rise hotel to a low-rise motel is between 15% and 20% per square foot.
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.
For office buildings and apartment buildings, heights above ten stories tend to lower the dollar-per-square-footage cost.
Hotels are an exception. As they get taller, the square footage cost rises.
Larger hotels come with elaborate lobbies, mezzanines, convention floors and a myriad of meeting rooms to attract business bookings.
Also in the mid-range for construction costs are elementary and secondary schools, along with institutions of higher learning (i.e., college buildings).
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. The inverse of the equation is that it costs 24% less to build in Atlanta than in Chicago.
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%).
In a couple of final comparisons, Atlanta and Miami construction costs relative to New York are about one-third cheaper. Houston and Dallas are even more of a bargain.
Year over year construction costs
There were some changes to the specifications in the model RSMeans used in its costing sample for hotel construction (both low-rise and high-rise) this year. Therefore, year-over-year percentage changes are misleading.
For the other two categories, the average annual increases for the 25 cities shown in the tables and graphs were +3.1% for a motel and +4.7% for a four-to-seven story apartment building.
By way of comparison, the current rate of inflation in the United States is +1.7%. That was May’s year-over-year increase in the all-items Consumer Price Index (CPI).
The run-up in construction costs, May 2012 versus May 2011, exceeded the change in the overall price level in the country.
From highest to lowest, New Orleans, Kansas City, San Francisco, Detroit and Denver ranked numbers one through five with respect to year-over-year cost increases among the 25 cities in the latest month.
Pittsburgh, Phoenix, Atlanta, Washington and Winston-Salem formed the next rung on the ranking ladder.
Cities with the lowest rates of construction cost increases were Portland (at the bottom of the listing), Philadelphia, Minneapolis, San Diego and Chicago.
Sixth, seventh and eighth places at the modest end of the scale were occupied by Boston, Houston and Cleveland respectively.
The outlook for construction costs
For some sense of where construction costs are headed, consider only that the world price of oil has dropped by one-quarter within the last two months.
As summer approached last year, the Arab Spring and threats to supply from such events as the regime change in Libya drove the price of West Texas Intermediate up to $110 U.S. per barrel.
Since then, the slowdown in the world economy – brought on by Europe’s sovereign debt problems - and some slight easing of tensions in the Middle East have lowered the price of crude to less than $80 per barrel.
Energy prices have their biggest impact on the cost of engineering construction. That’s where the largest concentration of fossil fuels and their derivatives can be found in the building product mix.
Other construction categories are cost-dependent on a more varied assortment of raw materials.
For example, the cost of residential construction is closely tied to the demand for forest products.
Increasing imports of lumber and plywood by Asian nations has supported output from some North American producers even as U.S. homebuilding has lain on the mat barely conscious.
But now U.S. house-building is starting to stir again. Housing starts in May were over 700,000 units, but even more significantly May and April numbers were revised upward significantly.
Residential building permits in May were 780,000 units, seasonally adjusted and annualized. The permit series is a leading indicator by one or two months for starts.
For the first time in eight months, the S&P Case-Shiller existing homes price index rose month to month in April. Both the 10-city and 20-city composite indices increased 1.3% from March.
The improvement was broad-based with 19 of the 20 major cities monitored recording a month-to-month increase in prices.
The individual series still remain mostly down on a year-over-year basis, but the tide appears to be turning.
In non-residential building markets, the downward shift in commodity prices has been evident, but not nearly as severe as in the energy sector.
Metals and minerals prices are only marginally off both their pre-recession and post-recession highs.
The unemployment rate in construction in May was 14.2%, down from 14.5% in April and 16.3% last May.
Average hourly earnings in the industry in the latest period were +1.5%, while average weekly earnings were +1.7%.
Those increases in compensation were in line with the results for total U.S. industry, which were +1.7% in both instances.
U.S. construction employment has remained low and flat so far in the broader economic recovery. But the number of jobs in the design professions is exhibiting a definite rising trend.
This will have positive implications for on-site activity levels as 2012 winds down and 2013 comes into clearer focus. That’s when wages may also receive more of a boost.
|HOTEL (4 TO 7 STORIES)||HOTEL (8 TO 24 STORIES)|
|2012||2011||% Change||2012||2011||% Change|
|15||NEW YORK CITY||238.75||223.78||n/a||267.84||238.03||n/a|
|MOTEL (2 TO 3 STORIES)||APARTMENT BUILDING (4 TO 7 STORIES)|
|2012||2011||% Change||2012||2011||% Change|
|15||NEW YORK CITY||223.42||216.49||3.2%||232.14||221.64||4.7%|