Non-residential construction outlook stable as flat material costs and growing labor pools encourage continued spending. Tariffs remain an area of concern.
The overall outlook for non-residential construction is relatively stable, with a $1.24 trillion tailwind in 2024 construction spending expected to be bolstered by heavy investment into data center, warehouse, and manufacturing projects across 2025. Slight decreases to material costs in 2024 and an easing workforce shortage also bode well for project starts even as the industry evaluates the impact of tariffs on construction economics.
The Salt Lake City regional office reported an increase (+1.46%) for the quarter, joining Portland (+0.28%), Phoenix (+0.43%), Seattle (+0.60%), and Chicago (+0.62%), while the Denver regional office reported a cost decrease (-0.89%), as did the Milwaukee office (-0.13%)
Nationally, nonresidential construction costs tracked by the Mortenson Quarterly Cost Index for the 4th Quarter 2024 edged nominally higher by +0.33% over the past quarter and +1.97% over the previous twelve months.
Construction material costs continued to soften in the fourth quarter, falling 0.2% for a year-over-year decrease of 0.8% as markets show some recovery from inflation and supply chain disruptions triggered by natural disasters and the coronavirus pandemic. Ocean freight container rates have remained steady and over the road transport is widely available with rates at historic lows.
While several energy and infrastructure categories–including High Voltage Circuit Breakers (+12%) and Power Conversion Systems (+10%)--remain challenging from a procurement standpoint, lead times across most categories have stabilized.
For Q4, the top three packages seeing price increases in the Salt Lake City market were Plumbing (+6.1%), HVAC Systems (+4.8%), and Gypsum Board Systems (+4.3%). Top packages showing decreases include Reinforcing Steel Material (-4.0%), Electrical Traction Elevators (-3.6%), and Electrical Systems (-1.7%).
Trade partner work costs increased nationally by 0.7% during the fourth quarter, contributing to a year over year cost increase of 3.7% for trade partner work. Trade partners in some markets reported an increase in competition and aggressive pricing across various scopes, which is likely to lead to cost decreases for those packages.
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CONSTRUCTION COST INDEX
Nationally, the Mortenson Cost Index increased 2.0% in 2024 compared to the previous year. In Salt Lake City – where we recently began tracking cost trends – the index increased 1.5% in the most recent quarter.
CONSTRUCTION EMPLOYMENT
Building construction employment in the Salt Lake City metro averaged 11,800 workers in 2024, a 3% increase (333 workers) compared to 2023 average employment. While labor shortages have eased slightly, they remain a persistent challenge for the industry.
Source: Bureau of Labor Statistics
MATERIAL PRICING CHANGES
Commodity-based materials prices are reported to be generally stable, although MEP (mechanical, electrical, and plumbing) scopes continue to show material and equipment pricing volatility.
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Drivers of labor costs, which increased 5.7% nationally year over year, have likewise remained market specific. Large projects in the Salt Lake City market have triggered cost increases in MEP scopes as trade partners look to attract and retain workers even as job openings industry-wide hit historic lows.
“Construction industry hiring slowed to an unprecedented pace in December,” said Anirban Basu, BC Chief Economist for the Associated Builders and Contractors. “This slowdown is a direct result of diminished demand for labor, and industry wide job openings have fallen exactly 50% over the past year.” For the first time since 2011, the median construction worker is younger than 42, Basu said, which means an increasingly larger section of the workforce is comparatively unskilled, putting upward pressure on costs for skilled labor.
Commenting on tariffs, Basu noted that activity in the data center and manufacturing segments will remain elevated regardless of upward pressure on construction costs as tech giants including Google, Microsoft, and Amazon continue their investments into building increased capacity to keep pace with the growth in artificial intelligence.
The Dodge Momentum Index (DMI), issued by Dodge Construction Network, grew 10.2% in December to close the quarter, with data center and warehouse project plans again leading the way. “Commercial activity rebounded strongly in December, thanks to a re-acceleration in data center and warehouse planning activity,” said Dodge Construction Network associate director of forecasting Sarah Martin. “Overall, the strong performance of the Momentum Index this past year is expected to support nonresidential construction spending throughout 2025.”
The Mortenson Construction Cost Index shows a negligible cost increase for the 4th Quarter 2024, continuing a period of relative cost stability as inflation cools and material costs recover from the impact of inflation. We expect overall spending on non-residential construction to likewise remain steady as conditions across the first half of the year adjust to the impact of tariffs and the growth trajectory of skilled and unskilled labor pools. We recommend customers consider project starts on an opportunistic basis across the first quarter of 2025.
For a more specific update or questions regarding this report, please contact:
Matt Hackman
Estimating Manager
matt.hackman@mortenson.com
763.442.3489
Josh Caldwell
Director of Business Development
josh.caldwell@mortenson.com
801.205.6426
About this report: Mortenson tracks and reports on eight metropolitan areas in the U.S. including Chicago, Denver, Milwaukee, Minneapolis, Phoenix, Portland, Salt Lake City and Seattle. The Mortenson Construction Cost Index is calculated quarterly by pricing representative non-residential construction projects in various metropolitan areas. It is part of a portfolio of industry insights and market studies provided by Mortenson.