While many traditional office dealers have been sidelined by the COVID-19 crisis, the pandemic has not slowed down medical providers to continue operating – especially during the pandemic, causing steady demand for tenant improvement projects in medical office buildings.
However, the pandemic has greatly disrupted the whole construction industry, with volatile labor rates and material costs going up – and then down, complicating the evolving facility design meant to meet the needs of future tenants.
Building Construction Costs Disruption
All of the pandemic-related forces caused building construction costs to decline slightly for the first time in a decade.
The Building Cost Index used to measure costs in the U.S. nonresidential building construction market, fell to a value of 1171 in the third quarter of 2020.
A 1.5% quarterly reduction from the beginning of 2020 led to the lowest building construction value since 2010.
There could still be some changes since the index held steady in the fourth quarter of the past year but increased only by 0.09% in the first quarter of 2021 (to 1172).
Price Surge In Building Materials
We are now witnessing a price surge of 20% to 25% in building materials, especially the two main ones: lumber and steel.
According to the building market research from March, softwood lumber, iron, and steel spiked up from 50.8% to 73% in prices during the past year.
A Year Of Subsequent Price Rises In The Steel Industry
The steel industry claims the tremendous pressure has been put upon by the domestic mills, and that is why they had to subsequently raise prices on all their products by 5% each month beginning in October 2020.
The prices of steel have risen again by 10% in January and February, and then 20% more in March. The subsequent rise has continued until April 2021.
Some of the root causes of the extreme pressure on the domestic steel supply and decreased number of domestic steel providers are:
- Mill consolidation
- Mills idling capacity in response to the COVID-19 pandemic
- Buyers leaning out inventories, as the 2020 economy is very constricted
- Increased international demand in combination with Section 232 tariffs led to a reduction of competitively priced imports
- Brisk demand for construction products
Reasons For Lumber Price Increases
The lumber price increases occurred due to a variety of reasons, but the main culprit is considered factories that pulled back production.
When the demand dropped, they reduced their running capacity, causing several problems directly linked to lumber prices:
- Lingering supply chain issues like stacking up ports,
- Tariffs on lumber,
- Even wildfires in the west
But, well, we can (mostly) all the spikes trace back to COVID-19, in some way.
What About Healthcare Construction?
While the price increases undoubtedly affect all construction projects in the U.S, they are having a larger, ripple effect into areas related to healthcare construction.
As construction sites come back in life around the world, increasing demand for products and materials could keep prices on the rise, which has already happened with the costs for drywall, copper, steel studs, and even vinyl.
Surge In Demand For Medical Office Buildings
With the surge in demand for medical office buildings, we can expect to see further price hikes as in-person healthcare activity picks back up post-pandemic.
For planning purposes, building owners and landlords need to achieve and uphold complete price transparency.
Tenant demand for build-outs will not diminish, not even amid scarcity, rising prices of building materials.
That is why both landlords and tenants alike must be prepared for what can realistically be accomplished in the current (and future) construction environment.