Dive Brief:
- President Donald Trump's steel (25%) and aluminum (10%) import tariffs are taking the wind out of Seattle's current building boom as some developers scramble to control the resulting cost increases, according to King 5 News.
- In Mortenson Construction's second-quarter 2018 Construction Cost Index report for Seattle, the company said owners should expect a 6% to 8% uptick in costs for the rest of 2018. If the issues around the tariffs and emerging trade wars can be resolved, however, costs should increase by only 3% to 5%. Local real estate developer Kevin Daniels said tariffs have driven up steel costs for his projects by 20%, and Sound Transit has estimated that rising prices for steel and other materials will drive up the price tag for the Federal Way Link Extension light rail project by $460 million. Developers of the Key Arena reconstruction project said they're looking at an approximately $100 million material cost increase thanks to the tariffs and the resulting increase in steel prices.
- However, not all builders and developers are blaming the tariffs for rising costs. Greg Smith of Urban Visions told King 5 that large area projects like Microsoft's redevelopment project in nearby Redmond, Washington, and the Washington State Convention Center have spoken for much of the area's skilled labor pool, and the short supply is what is driving up costs on Urban's $1.5 billion of construction projects.
Dive Insight:
Mortenson tracks costs in several U.S. markets, and tariffs have affected the company's projections for them all through the rest of the year, although the expected cost increases vary from metro to metro. In Chicago, the company expects cost increases in the 5% to 7% range, along with Denver (7% to 8%), Milwaukee (6% to 8%) and Minneapolis (4% to 6%). As with the forecast for Chicago, those percentages could come down if the tariffs and trade wars can be resolved.
One construction segment that uses a great deal of steel is the self-storage market. Tariffs have driven the cost for those structures, according to the SpareFoot Storage Beat, by as much as 10%. Some lenders are also as much as doubling the contingencies included in financing plans. Builders have seen steel prices in the self-storage construction space increase by 30%, and some are worried that once those projects in the pipeline are complete, developers will cut back on the number of structures in their building programs.
