It is no surprise that the construction world is seeing changes in pricing in a post-pandemic world. In this blog, Business Development and Marketing Associate Jenna Herrick sits down with APOGEE President Kassie Inness for a Q&A-style discussion on a hot topic in the real estate world: construction costs.
JH: Kassie, talk to us about the current construction market and why pricing is inflated.
KI: Thanks, Jenna. The pandemic sent lumber prices soaring because the mills were under the wrong assumption that demand would go down. Which, in reality, was the exact opposite. Other commodities such as steel and metal decking are experiencing record-long lead times in addition to a 225% jump in price from one year ago. Our construction projects are not affected by steel pricing and delays, but we have seen 10-20% increases in building materials such as drywall, carpet, and asphalt shingles.
JH: I know APOGEE has a few developments and CapEx projects going on. How have these rising costs impacted your work?
KI: Where APOGEE has been hit the hardest is in our apartment renovations and common area updates. For instance, appliances have lengthy wait times and a pricing increase of 20 – 35%, depending on the manufacturer and style. We have also run into problems with electrical supplies, plumbing fixtures, and a lack of paint. Overall, lead times have been improving for building supplies, but we are still struggling to source furniture in a reasonable amount of time.
JH: What should investors expect as far as returns?
KI: Thankfully, even with these increases in costs and inflation in certain commodities, we have kept investor terms stable. One main reason for that is interest rates have remained low, allowing us to offset any rise in pricing. It has taken some strategizing, but our investor returns have remained pre-normalized or stable from what they usually are.
JH: Lastly, when do you expect construction prices will begin to drop, if ever?
KI: I wish I had that magic ball to predict that. I believe things will eventually start to normalize to where we have a supply of materials and equipment more readily available than it is now. However, I don’t think we will ever go back to pre-pandemic pricing. Once the market expects a price point, it is hard to fall back on those older price points without feeling like vendors are losing money. So good, bad, or otherwise, inflated construction costs are mostly here to stay, and we will continue to find efficiencies in schedule and hope for low interest rates and cap rates to offset.
JH: Thanks Kassie, this is great information. You can learn more about Metonic and our affiliate company APOGEE at metonic.net.