Right now might be a good time for developers and owners to bid and start construction projects and for retailers to consider new leases in areas where they are under-represented.
Why? Construction material manufacturers and commodity vendors are cutting prices, and contractors are sharpening their estimating pencils.
In mid-April, the Bureau of Labor Statistics released the most recent Producer Price Index report, which showed that construction materials were declining in price. The price of materials used by commercial building contractors declined 2.6% over the past year.
And since stimulus funds from the American Recovery and Reinvestment Act started flowing into the states, contractors suffering through the recession have been showing up en masse to bid on available projects. The increased competition has driven prices down.
According to a Washington Post report in early April, Baltimore-Washington International Thurgood Marshall airport officials typically expect two or three construction companies to place bids on projects. They were surprised when six companies placed bids on a renovation estimated to cost $50 million. They were stunned when the newly competitive bidding environment enabled them to let the job for just $42 million.
The Post also noted that a Connecticut road project budgeted for $75 million had been let for $66.6 million.
Commenting on the current environment, Ken Simonson, chief economist for the Associated General Contractors of America, said in a prepared statement:
“The price declines make this a great time for public agencies and private owners alike to start construction projects, particularly because this ‘limited-time sale’ may not last much longer. Copper and diesel prices have recently moved up, and steel markets are sending mixed signals.”
Another statement issued by Simonson in early April said that, “It is growing more likely that real (inflation-adjusted) gross domestic product will rise slightly in the quarter that began on April 1 from the dismal levels of the first quarter. The growth is likely to pick up gradually throughout the rest of the year, but it will be uneven, unlike the downturn that affected all sectors.”
As an example of this unevenness, Simonson doesn't expect retail construction to resume until early next year. Even so, for developers and owners with access to capital, low prices for materials and construction work could help projects that have been put on hold get back on track; and for retailers interested in holding down leasing costs, lower-cost retail shopping centers may offer lower cost pre-leasing deals.