It seems like everything is more expensive than it used to be.
Recent inflation has pushed up prices across the board, a trend that has heavily affected the construction industry. Upstate contractors are adapting to the reality of higher costs.
They’re doing this, in part, by devoting more time and energy to planning ahead and communicating with clients, according to James Jordon, founder and president of Greenville’s Jordon Construction Co.
Jordon said that, to a certain extent, elevated costs and pricing volatility are part of doing business in the world of construction today. To remain competitive, companies like Jordon’s pay close attention to input costs and plan ahead as much as possible.
On a day-to-day basis, that can mean buying supplies and materials and storing them until a project breaks ground as a hedge against price spikes. Jordon’s company recently purchased a secured 3,000-square-foot warehouse to store materials immediately after getting a commitment for a project.
“It’s changed our business model a bit, but it was necessary,” he said.
This tracks with a similar national trend among manufacturers, many of which have shifted away from a just-in-time model of inventory delivery to a just-in-case model where supplies are stockpiled against potential price spikes or issues of availability.
An analysis of nonresidential construction trends likely to unfold over the next two years published in January by the American Institute of Architects noted construction-supply prices have stabilized recently but remain about 35% above pre-pandemic levels.
Jordon said his team constantly evaluates inflationary pressures to determine when it makes sense to buy ahead for items such as cabinetry, drywall or millwork.
Good communication
Pricing volatility can also inform design choices, according to Jeremiah Sexton, CEO of Greenville-based Sexton Design and Development.
Because his company is involved with both project design and construction, Sexton said it has been able to successfully guide clients and their projects through the pricing turbulence of the past few years.
At the heart of this success is building a relationship of trust with clients based on excellent communication.
Sexton said a critical first step is to spend time with clients to help them understand the process, from selecting and ordering materials to the steps involved in permitting a project.
It also helps clients understand when Sexton and his team present design options like using a less-expensive material for a part of a project where it is unlikely to make a difference, or spending more for materials or fixtures that will become a focal point or see a lot of use.
“I think that really provides a smooth process,” he said. “We’re all going to get as close as we can on the same page … but then from there, there’s a lot of work to make sure we stay on the same page.”
Jordon said this level of communication is crucial, especially when dealing with government projects where budgets are set often far in advance of the work.
In addition to working with clients to help them understand pricing volatility, Jordon said his company has had to narrow the window of when it can guarantee pricing.
Growth sectors
Nationally, nonresidential construction spending is expected to grow at about 4% in 2024, down from a more robust 20% growth rate in 2023, according to the AIA Consensus Construction Forecast.
The forecast anticipates modest growth in the institutional construction sector, primarily in education and health care. Jordon and Sexton confirmed it is a trend their companies are experiencing locally.
The AIA forecast noted health care construction was one of the few sectors that did not experience a decline during the pandemic.
Jordon said the Southeast markets where his company operates continue to see population growth, which drives increased demand for health care services and thus the need for expanded facilities.
While Sexton noted his company’s similar experience with increased institutional projects, he said he also anticipates strong growth in the hospitality sector.
He said it was in part driven by shifts in consumer demand and expectations for the places where they spend time to be more experiential — the hunt for “Instagrammable spaces.”
“That’s 100% what we’re doing on all the hotel design,” he said.
Paying attention to consumer trends driving construction demand and communicating with clients about costs are key to maintaining a competitive edge, Sexton and Jordon said.
“The construction companies that will last and will win in the end in this environment are the ones that are being innovative and are thinking about a better way to do construction,” Jordan said.
Construction costs trends
Here are some highlights of the AIA Consensus Construction Forecast looking at nonresidential construction trends over the next two years:
- A 4% overall increase in construction spending is expected in 2024, dropping to about 1% in 2025
- Manufacturing construction is expected to grow 10% in 2024
- Construction labor costs are increasing by about 4% annually
- Education sector spending is expected to grow 6% in 2024 and about 4% in 2025
- Health care construction spending is expected to grow 3.5% the next 2 years
