Inflation “seems to be playing a tug-of-war game” with the construction market, Larry Graeve and Amy Burk of The Weitz Company write in a new issue brief for the American Seniors Housing Association.
Tariffs and a labor shortage are driving inflation up, they said, while the potential for another recession casts uncertainty on whether the construction market will continue its record growth.
“It would be wise to carry 3% to 5% in annual inflation for construction projects in most markets,” Graeve and Burk recommended.
Contractors remain busy — even backed up — with projects, according to the brief. The Engineering News-Record’s Construction Industry Confidence Index, however, has dropped to 58 points out of 100 in the second quarter, down 12 points from third quarter of 2018. “This lower score indicates more pessimism in future construction markets,” Graeve and Burk wrote. “In addition, we are nearing an election year, which adds to the uncertainty.”
The per-square-foot cost of construction in summer 2019 in independent living has averaged $160 to $245 per gross square foot, depending on materials and finishes used, the report said. Costs in assisted living, meanwhile, have averaged $186 to $296 per gross square foot, and costs in skilled nursing have averaged $214 to $346 per gross square foot.
The calculations, based on a city index of 100, include general conditions, insurance, tax, bond and fee but not site construction costs.