RLB: Construction costs rise 1.2% in Q4; up 5.2% YOY

Using the 12 markets that quantity surveyor and construction consulting agency Rider Levett Bucknall tracked in its fourth quarter 2019 North America Quarterly Construction Cost Report, U.S. construction costs rose an average of 5.2% from October 2018 to October 2019. The average increase in construction costs between the third and fourth quarters of 2019 was 1.2%.

Markets coming in above the year-over-year average were:

San Francisco (7.8%)
Chicago (6.3%)
Honolulu (6.2%)
Seattle (6.2%)
Washington, D.C. (6.2%)
Portland (5.8%)

Metros areas coming in below the average were:

Phoenix (5%)
Las Vegas (4.8%)
Denver (4.3%)
New York (4.3%)
Boston (4.2%)
Los Angeles (1.1%)

RLB also laid out the square footage prices for a variety of project types in the 12 markets and included low and high cost ranges for each. The most expensive type of project was as high as $870 per square foot for a hospital in Los Angeles and the least expensive was $45 per square foot for a ground parking lot in Phoenix.

In comparison, the high-end cost of building a hospital was $455 per square foot in Las Vegas, and the cost of building a ground parking lot in New York runs as high as $175 per square foot. RLB noted that costs from market to market take into account factors like site conditions, climate, specification standards and local economic conditions.

San Francisco had the highest increase in costs in this latest RLB report, but RLB isn't the only one tracking the metro. In Turner & Townsend’s "2019 International Construction Market Survey,” the management and consulting firm identified San Francisco as the most expensive city in the world in which to build, ahead of New York City, London, Zurich and Hong Kong. The average per-square-foot cost to build in the Bay Area was $416, an increase of 5% from 2017.

In its report, Turner & Townsend said that the metro's thriving tech industry — and the resulting demand for space — was partially to blame for San Francisco's skyrocketing construction costs. In 2018, for instance, the cost of building a new office in the Bay Area ranged from $300 per square foot for construction in a business park to $625 per square foot for a high-end office high-rise.

For startups or smaller tech companies that can't afford such expensive space, cities like Phoenix are actively courting the tech industry and are more in their price range. In 2018, the same high-rise would have cost $340 per square foot, while the less expensive option in a business park would have run $124 per square foot to build.

In October, the San Francisco Board of Supervisors approved legislation that will likely drive San Francisco's construction costs even higher. In order to raise money for affordable housing, the city's Jobs Housing Linkage will almost double, bringing in approximately $400 million for housing during the next 20 years.