High steel, lumber costs cause ‘sticker shock’ among developers, says CBRE

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The cost of commercial real estate development is up significantly this year amid dramatic increases in domestic steel and lumber prices.

The increased costs are creating sticker shock for developers, causing some to cancel or postpone projects, according to CBRE. Others are increasing their pre-pandemic construction budgets by as much as 20%, anecdotal evidence suggests.

By early May, both steel and lumber prices had more than tripled since late last year, the report said, citing SteelBenchmarker and TradingEconomics. But since peaking at $1,686 per thousand board feet on May 7, lumber prices have dropped by 23% to $1,306 on May 19 — still up by 260% from late last year.

The pricing surge is partly due to limited supply after many steel and lumber mills were temporarily closed during the height of the COVID-19 pandemic. As restrictions eased and commercial real estate development began to resume, producers were unable to keep up with skyrocketing steel and lumber demand.

Despite some cancellations, 2021 will still see a boom in new commercial real estate development, CBRE said. Dodge Data & Analytics reports that projects costing more than $50 million each will increase by at least 40% year-over-year for total completions of 430 million sq. ft. Multifamily projects account for around 45% or 194 million sq. ft. of that total, followed by warehouse projects at 36% or 158 million sq. ft. Office projects account for 17% and retail projects just under 2%.

Published by CSA

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