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How Commodity Prices Are Shaping the Commercial Construction Market

How Commodity Prices Are Shaping the Commercial Construction Market

As the Front Range economy begins to move forward from the COVID-19 pandemic, the commercial construction market is witnessing unprecedented volatility. Todd Ruff, GH Phipps VP of Preconstruction, has continued to keep a watchful eye on the market across Colorado and Wyoming. We recently sat down with Todd to discuss his view of the marketplace today. Here’s what he had to say on the subject:

“Due to market volatility, we have seen many trade partners submit their bids and say, ‘Here’s our bid, it’s good until the end of the week.’” GH Phipps stays in close communication with our clients throughout the bidding process to provide them with transparency and expert insight, helping to manage these variable conditions.”

Much of the volatility in the market can be attributed to increases in commodity prices. In general, the trend harkens back to basic laws of supply and demand. In the early stages of the pandemic, manufacturers and material suppliers decreased production under lockdown regulations, also expecting decreased demand from builders/developers.

As the economy is now starting to ramp back up, projects that were previously put on hold, and new construction, are reentering the marketplace. This has created a sharp increase in the demand for materials – particularly steel and lumber – which has far outpaced the rate at which suppliers can replenish their stock. This volatility has forced trade partners to put tight deadlines on their bids and required general contractors like GH Phipps to monitor the market closely.

 

Change in construction input costs and bid prices

 

Figure 1 demonstrates the phenomenon of market change. Between April 2020 and February 2021 bid prices remained fairly stable, increasing by only .5%. However, input costs that measure the expenses of a contractor’s purchases, spiked by 12.8% over the same 10-month period. If a contractor won a job in April of 2020 but waited until early 2021 to purchase materials, this price inflation would have greatly impacted their projected profit margin.

 

Price changes for construction and selected materials

 

Figure 2 shows the change in price for a variety of construction and selected materials nationwide.

Steel Product Prices

Within our local commercial construction market, steel product prices have driven much of the volatility. Nationwide, the price of steel commodities increased by 20% between April 2020 and February 2021. In addition to this increase in price, the supply chain has also been interrupted. An example: steel joists and decking supply availability dropping drastically over the past year. This can be attributed in part to speculative industrial space and companies purchasing a sizable percentage of available joist supplies to fuel their increased warehouse development.

Lumber Prices

As a result of factors both endemic and non-endemic to the construction industry, lumber prices have greatly increased by 62% and are still climbing. Within the industry, both residential and multi-family projects have accelerated to meet the demand for attainable workforce housing. Other industries, such as furniture and appliances, utilize lumber to package and palletize their products. The increase in demand for these and other lumber uses has created a spike in both the demand for and cost of lumber.

Electrical Cost Impacts

Several anomalies have had a large impact on the market. For instance, a fire at a PVC manufacturing facility greatly reduced the amount of insulation that could be produced for copper wire. “When we hear electricians discussing commodity prices, it’s usually in regards to copper prices.” This instance has served to drive up the price of electrical installations.

Labor Prices

In terms of labor prices, we are seeing stable to modest increases. Companies are bringing back employees to work on projects that were previously put on hold. Ruff noted, “We are seeing people learn how to tackle a project with fewer available resources. It’s that ‘Do More with Less’ mentality. The consideration of, ‘What can we do to become more competitive?’” This is a direct reaction to market volatility. Trade partners are trying to combat increased commodity prices by utilizing more efficient production methods so that they can continue to bid competitively.

Our knowledge of the local trade partner community and commercial construction industry has equipped us to successfully manage client relationships while continuously monitoring the current state of the market. Through all of the uncertainty, we have prioritized our commitment to our clients and trade partners, and have continued to provide a top-rate service.

If you are looking to move a project forward in the coming months, we would be happy to discuss the ways we can utilize our expertise to ensure an exceptional building experience.

GHP - Studio 135: Building in an Urban Environment

Studio 135: Building in an Urban Environment

Studio 135 is a new 5-story micro-unit apartment complex located in North Cherry Creek. It features 35 apartments, with 28 of the units consisting of studio and micro floor plans directed toward people working in the Cherry Creek area. The project was designed by Saiber Saiber Architects and developed by PANDO Holdings, with GH Phipps serving as the General Contractor.

In dense, urban areas like Cherry Creek, the construction process is approached differently than in surrounding suburban areas. In this article, we are going to break down key elements for how we build in a downtown environment.

Considering Communities

Construction can be noisy, invasive, and disruptive to a community. To minimize the impact on a community, open discussion, and careful planning must be prioritized. In Denver specifically, there are many Registered Neighborhood Organizations (RNO’s) that need to be kept in the loop throughout the construction process.

Many areas, such as Cherry Creek, also have Business Improvement Districts (BID’s), which represent commercial property owners in a given area. BID’s have specific construction requirements, including planning for sidewalk and street closures, the impact on parking, and pedestrian safety standards. Understanding these requirements allow us to provide a safe environment while limiting closures and temporary conditions along with the associated costs.

Large building on a street in an urban setting

It is important to maintain a positive relationship with both RNO’s and BID’s throughout both the preconstruction and production phases of a project. Studio 135 is the third of a recent string of projects we’ve built in Cherry Creek. We have also recently completed the Global Downs HQ, a new Yeti retail store, and will soon be constructing an office building for Broe Real Estate Group. Without question, we understand how to meet this need for enhanced communication within the Cherry Creek neighborhood.

Zoning Overlays and Design Advisory Boards

There also has to be a consideration for the area-specific requirements put forth for the neighborhood where construction is taking place. There are often guidelines for the exterior materials, size, height, building setbacks, and ground floor use that can be built in a given area.

Neighborhood plans, zoning overlays, and design advisory boards will define certain uses of a ground floor space, which is often reserved for retail. As developers and their design partners are considering concepts that meet the needs of all these stakeholders, having a partner that can provide quick, reliable cost analysis of alternative solutions can save a lot of valuable time.

Large building in urban area

Relationships with the authorities who issue building permits and perform inspections are also important. Understanding how to balance the cost and schedule benefits of partial permit strategies can dramatically influence how fast a project gets delivered. An advantage of getting phased permits early is being able to streamline the process and start construction while still in the phases of design and development.

However, this can add expenses and delays if design changes need to be made down the line. This holds the potential to force late modifications to the structure’s design as well as the project schedule. Understanding the process of TCO Stocking, TCO, and CO inspections dramatically speed up the owner move-in process, knowing the inspection team is also important.

Logistics

In densely populated urban areas like Cherry Creek, space comes at a premium. There are logistical considerations unique to each construction site that need to be given attention. This can range from details, such as where construction workers are allowed to park, to more serious operational guidelines such as crane location, swing radius, air rights, material deliveries, and trucking routes.

Studio 135 was developed on a zero lot line site, meaning that there was no space available to stage or store materials. When building in a downtown environment, the absence of logistical space leads to more complex scheduling and time constraints. For this project, we utilized just-in-time delivery, ensuring materials were brought on-site precisely when they were needed. They were quickly installed, making sure everything was ready for the next day’s deliveries.

Construction workers on the side of an industrial building

Some building components may also be prefabricated off-site. Prefab systems at Studio 135 included wood-framed structural elements, exterior, and interior wall systems. Utilizing prefab simplifies the construction process, as work is constructed off-site and delivered on-site for installation. We used BIM to design and coordinate the prefabricated wall panels, requiring less on-site labor, a lower staging footprint, and less overall disruption to the community.

The complexity of scheduling and planning was not only relevant to construction methods but also included on-site logistics planning. A parking plan was developed to prevent workers from taking up neighborhood and retail parking. Additionally, the closure of sidewalks, alleys, parking spots, and street lanes required a thoughtful and strategic plan that effectively minimized costs and best-utilized construction time.

In short, building in an urban, downtown environment is no easy task. It takes careful consideration and communication with community organizations, such as RNO’s and BID’s, to get a project off the ground. Construction must comply with zoning requirements, and General Contractors must carefully plan out their work to accommodate the logistical issues unique to each site.