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Contractors Raise Prices To Keep Up With Cost Increases, Especially To Build Warehouses: Up 13% In October

As U.S. consumers experience the strongest price inflation in 30 years, contractors are seeing their own brand of inflation that is putting the squeeze on the construction industry and is now causing contractors to raise what they charge.


Bid prices charged by contractors for new structures shot up across commercial development sectors in October compared with September, according to the Bureau of Labor Statistics, which tracks inflation for producers as well as consumers.

Most notably, the cost of building warehouses increased 13% for the month, far more than any other property type the BLS tracks.

The cost of new office building construction grew 5.8% for the month, and the cost of healthcare facilities was up 6.5%. The agency doesn't track the cost of apartments in its producer price report.

The October price spikes were sudden. From August to September, warehouse construction prices were flat, and the cost of new office construction actually dropped by 0.1%.

Still, rising costs have been putting the heat on contractors all year, and it appears the dam burst this fall, with contractors raising prices to keep themselves above water.

“For a year, cost increases outran bid prices. It created quite a squeeze for contractor profits,” Associated General Contractors of America Chief Economist Ken Simonson told Wealth Management. "Now it’s the contractor’s turn to raise their prices.”

In the case of warehouses, rents are rising fast enough that construction costs aren't necessarily a worry, according to panelists at Bisnow’s Philadelphia Industrial Outlook in October.

The cost of construction materials was up 13.2% over the 12 months ending October 2021, according to the BLS, with softwood lumber seeing particularly strong movement. From September to October, wholesale lumber prices spiked 9.1%, representing a partial reversal of a 27.7% price drop between July and August. Steel prices were up 4.8% for the month in October.

Labor costs are rising as well. Average wages for construction workers rose 3% in September compared to the year before, the bureau reports.