Construction Dive published an article recently highlighting the measurable decrease in construction costs. Based on the Turner Building Cost Index, it would appear that nonresidential building construction costs dropped 1.01% from the first quarter of 2020 compared to the second.
This means that there are more companies than usual bidding on each available project, which tends to drive construction prices lower. This trend is consistent with the results of ABC’s recent Construction Confidence Index, Basu said, which reported that although construction firm executives expect sales to increase over the next six months, they also expect profit margins to become slimmer.
The dip in construction costs is also partly attributable to a decline in the price of some materials, especially energy. In addition, June construction input costs are down 3.4% compared to the same time last year, although prices have recently stabilized, Basu said.
Nearly two in five contractors expect profit margins to shrink over the next six months, with nearly 9% expecting a sharp hit to margins, according to ABC. A year ago, fewer than 1% of contractors expected a sharp contraction in margins and a majority expected margins to keep rising. But now, according to the latest survey, fewer than one in three contractors expect margins to rise over the next six months, Basu said.
We see similar trends at the onset of other recessions. In speaking with public and institutional clients, recessions represent an opportunity to purchase construction services at a savings, although concerns over the ability for contractors to complete work becomes a real concern. Cutting profits to keep jobs isn’t sustainable in the long run.