"Overheated" S.F. and Seattle will have highest construction cost increases.


Two booming tech hubs and escalating construction costs.

San Francisco and Seattle, two booming tech hubs, will see the fastest construction cost increases in the U.S. this year, according to a new report from consulting firm Turner & Townsend. Both cities will see costs rise by 5 percent, outpacing the expected 4.3 percent increase in the top 46 global markets, according to the company’s annual International Construction Market Survey. The expected rate of cost escalation for San Francisco is unchanged from 2017, when it also rose 5 percent. San Francisco remains the world’s second-most expensive place to build at $347 per square foot, second only to New York’s $362 per square foot. San Francisco, Seattle and Amsterdam were also the only cities characterized as “overheated,” with many projects and limited labor pushing up prices.

Rising costs have stalled San Francisco high rise residential buildings, and the delays threaten to exacerbate the Bay Area’s housing shortage. “Capital will move to other markets. It’s very fluid. It doesn’t have to sit here in San Francisco or the Bay Area,” Garrett Frakes, partner at brokerage Polaris Pacific, told the Business Times last month. “With plenty of deals where a developer calls us, they’re looking at a parcel. It doesn’t pencil.” Turner & Townsend cited a shortage of construction labor and strong demand driven by the tech economy for the cost escalation. The top five most expensive cities have seen labor costs increase by 10 percent annually, said Turner & Townsend.

A UC Berkeley report in January also cited the long approvals process and permitting delays as factors driving up costs in San Francisco. “The industry skills shortage is one of the pivotal drivers of rising costs, felt at both a local and global levels. In order to create a construction industry fit for the future, we need to seize current market opportunity to attract new young talent back into skilled trades, incentivize the supply chain with more innovative and partnering contracting models, and invest in digital tools and modern techniques that will maximize productivity.” said John Robbins, Turner & Townsend’s managing director for U.S. operations, in a statement. “Across major U.S. cities, construction activity this year is expected to benefit from a combination of accelerated economic growth, recent tax cuts and the continued boom in the tech sector. The stage is set to be a bumper year for construction expenditure, and increasing demand will only turn up the heat further on costs,” said Robbins.

Read it at San Francisco Business Times

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