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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 in different parts of the construction sector. In addition to solid planning i innovative activitythe construction portfolio also reached one Maximum of 10 months in April
Yet despite this flurry of construction plans, Adam Raimond, director of programs at Gordian, a Greenville, South Carolina-based construction data provider, still expects a higher cost environment in the background.
“My overall take from these reports is that the trends that started to set in the previous two months are continuing,” Raimond told Construction Dive. “There is not much that contradicts the general narrative trends in the economy. Data center growth is high, all other areas are tepid, and global conflicts are a major reason for higher entry costs.”
Increase in construction input costs remains one of the main challenges of the sector. Input prices rose again in April and May, largely driven by tariff-sensitive energy and materials.
“Estimators should expect that the persistent upward trend in input costs will not continue much longer,” Raimond said. “Depending on the reporting source, input costs for materials have increased between 4% and 7% since the beginning of the year.”
Much of the material price jumps are derived metals and woodalthough rising fuel and transportation costs are starting to push up the prices of other inputs, Raimond added.
“At this point it seems unlikely that most of the costs will be reversed,” he said. “But if there is some relief in the price of fuel, it could at least slow the rise in other inputs such as plasterboard or concrete.”
Contractors are still pushing dirt
Even so, developers seem more and more willing to get started despite the higher costs, said Ermengarde Jabir, director of commercial real estate research at Moody’s, based in New York City.
“The latest data suggests that developers and investors understand that the current broader headwinds are simply the environment in which they must operate for now,” Jabir said. “There is a little more movement on the non-residential construction front.”
That’s especially true for ancillary projects around artificial intelligence builds, said Juan Arias, U.S. national director of industry analysis at CoStar, an Arlington, Virginia-based commercial real estate services firm.
“Data center construction is also driving demand for space from related infrastructure companies. We’ve seen good tenant leasing activity in electrical component and equipment manufacturing,” Arias said. “This will continue to drive healthy construction spending towards related infrastructure.”
However, Arias warned that the next challenge will be yes communities and public services can keep up with the growth of the sector.
“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. He also noted both the availability of energy and local resistance big risks in the future.
“Since the lion’s share of this activity is focused on data centers, it is important to consider the potential risk of oversupply in the short term, especially given how quickly technology and demand are evolving,” Jabir said. “Longer term, potential municipal pushback on data center construction and access to the power needed to operate a data center are two headwinds to consider.”
