U.S. construction costs are expected to rise by 3-6% in 2024, following a 4% increase in 2023. This escalation poses challenges for construction firms, necessitating the development of new processes and capabilities to control costs and keep projects on track.
These findings are detailed in "How to navigate 2024: Balancing challenge with opportunity," (https://www.curriebrown.com/en/news-insights/insights/2024/global-construction-costs-report/) a report published by Currie & Brown (https://www.curriebrown.com/en/), a world-leading provider of cost management, project management, and advisory services.
Currie & Brown also predicts significant variation in cost escalation among major cities. Construction costs in Chicago, IL, are forecasted to increase by 3.5% in 2024, compared to 6% in Phoenix, AZ. Consequently, a $10 million project built in Phoenix in 2023 will cost $10.6 million this year, while the same project in Chicago will cost $10.35 million.
To assist organizations in navigating uncertainty and improving cost-effectiveness, the report recommends action in the following areas:
Adopt new ways of working: Implement strategies such as modular construction to mitigate the impact of local skills and materials shortages, ensuring greater certainty in construction costs. Close collaboration among developers, consultants, and contractors will enhance clarity on schedules, facilitating early securing of skilled labor.
Incorporate sustainability: Consider the carbon footprint of projects at every stage of development to meet current and future standards. This approach reduces the need for future investments, delivers operational efficiencies sooner, and lowers the cost and carbon impact of estates over their lifespan.
Embrace digitization: Utilize digital technologies such as AI and advanced data analytics to enhance project ROI and anticipate and manage future challenges. Organizations should be receptive to new technologies and collaborate to apply them where they provide the most value to projects.
The U.S. is not alone in facing rising construction costs. Currie & Brown anticipates cost increases across all its operating regions in the coming year, with varying extents driven by common factors:
Geopolitical uncertainty: Federal Reserve decisions on interest rates and the upcoming presidential election could influence construction project financing and industry trends.
Inflation: After a slight increase of less than 1% in 2023, project material costs are expected to rise by 2-3% in 2024 as the economy normalizes post-pandemic.
Sustainability regulations: Tightening rules globally, exemplified by California's groundbreaking climate disclosure bills, will impact costs in the short term but aim for decarbonization and long-term cost reduction.
Skills and materials shortages: Record-low numbers of skilled workers and apprentices, coupled with strong construction activity, are driving up labor costs by 3-6% in 2024.
