Construction Industry 'Bust'ed? - Press Release

PHOENIX, AZ, 3 February 2009 - A quarterly publication from global property and construction consultants, Rider Levett Bucknall, reports decline in construction costs, signifying that the U.S. construction industry is undeniably in the midst of a 'bust.'

In a construction 'boom', such as was experienced over the last four year, construction costs typically increase more rapidly than the net cost of labor and materials. This happens as overhead levels and profit margins are increased in response to the increasing demand. Similarly, in a 'bust,' construction cost increases are dampened (or may even be reversed) due to reductions in overheads and profit margins.

Rider Levett Bucknall's current National Construction Cost Index indicates a quarterly decline in overall construction costs equating to a drop of approximately 0.7% below the previous quarter's index.

Among the cities featured in the report, very few reported construction cost escalation. Those with the most remarkable construction cost decreases from the previous quarter include Orlando, Florida and Portland, Oregon at approximately -1.2%, Washington, DC at nearly -1.5%, and Seattle, Washington at close to -4.0%.

Drivers of this decrease include a fall in construction material prices, particularly reinforcing bar and structural steel products, reductions in or elimination of material delivery fuel surcharges and a trend of increased competition among general contractors and subcontractors on recently bid projects due to lower anticipated forward workloads.

Continuing weakness in the residential construction market, coupled with growing signs of fragility in the private non-residential sector, are anticipated to weigh on construction costs through 2009.

"The health of the financial system-principally as it relates to credit availability and the stability of financial institutions-and the outlook of American consumers will likely be increasingly strong determinants of private non-residential construction volumes through the remainder of the year," said Julian Anderson, Rider Levett Bucknall President.

"Looking further ahead, we do not expect construction cost inflation to be a major factor again until either the non-residential construction sector recovers and/or commodity prices once again take a dramatic upward swing."

Quarterly Construction Cost Report

Each quarter Rider Levett Bucknall reports on the comparative cost of construction in 12 U.S. cities, indexing them to show how costs are changing in each city in particular, and against the costs in the other 11 locations. Together with additional international and national cost compendia, the cost research is meant to equip clients with proficient and relevant information to assist in key business decisions.

To download the latest version of the Construction Cost Report, or to view past issues, visit http://www.americas.rlb.com/cost-research_quarterly.html.