Construction costs in metro Atlanta rising at fastest rate in nation: CBRE report

By David Pendered

The cost of commercial construction grew at a faster rate in metro Atlanta than in any of the 14 cities included in a new report by CBRE, a global real estate company.

The cost of commercial construction for projects such as SunTrust Park has increased at a faster rate in metro Atlanta than in any other major city evaluated in a new report by CBRE, a global real estate company. Credit: AP via atlanta.braves.mlb.com

Atlanta notched a 3.8 percent increase in construction costs in the period from January 2015 to January 2016, the CBRE report showed.

Los Angeles ranked a close second, at 3.5 percent. The next group of cities was all in the 2 percent range – San Francisco (2.6); Chicago (2.5); Portland (2.4); Houston (2.3); Washington and Dallas (2.0).

The CBRE report addresses some perplexing issues that have appeared in market reports by the Atlanta District of the Federal Reserve. The report does not offer policy recommendations.

The Atlanta Fed’s Beige Book of anecdotal reports on the southeast regional economy consistently have included remarks from employers who say they face persistent shortages of skilled construction workers and truck drivers.

CBRE’s report notes that the number of construction workers in metro Atlanta has shrunk by 20 percent, even while wages have increased by 13 percent.

CBRE based its work on a number of reports from entities including the U.S. Bureau of Labor Statistics, RSMeans, and CBRE analysis.

Metro Atlanta lost 20 percent of its construction workers during the Great Recession, according to CBRE. Credit: CBRE

According to CBRE, metro Atlanta lost about 20,000 construction workers during the Great Recession. That was out of a pool of about 100,000 construction workers. This group includes workers who left the field between 2005 and 2015 and did not return after construction resumed.

Labor rates in metro Atlanta have risen by about 13 percent during this period. The average labor rate in metro Atlanta now is an average of $25 an hour.

Of note, local labor rates are just two-thirds of the national average.

The only major markets that pay less than Atlanta are Dallas/Ft. Worth and Austin. Both those regions pay average rates just below $25 an hour.

CBRE analysts determined that rates for construction workers rose out of sheer necessity to get enough hands to bid on jobs:

• “Recent years’ rising construction labor rates have resulted from a lack of manpower and experience in the construction workforce. When building activity plummeted during the Great Recession, only the best contractors (generally speaking) were able to secure enough work to remain in business throughout the downturn.
  

  Construction wages have increased by 15 percent in metro Atlanta, and remain among the lowest of major U.S. markets. Credit: CBRE

• “During that time, contractors bid jobs more competitively – partly out of financial necessity, but also because they were confident in their ability to handle tighter timeframes that allowed less room for error, since they were working with the best crews.
• “When the number of new construction jobs began to grow without a proportional increase in qualified construction workers, tighter labor market conditions pushed wages upward.”

CBRE analysts determined the five key take-aways in their evaluation of change in construction costs are:

• “Despite the global collapse of commodity prices, local prices of construction materials have not fallen.
• “The size of the construction workforce remains well below pre-recession levels, which has led to labor shortages in several major markets.
• “Growth in multifamily construction activity is partially o setting the steep decline in single-family homebuilding compared with the last cycle, driving up construction costs.
• “Supply-demand imbalances have contributed to strong growth in average construction wages, particularly in the Southwest.
• “Nonetheless, the pace of overall construction cost in ation has been moderate in recent years, relative to the prior cycle.”