The construction industry in 2018 can be summed up in one word: uncertainty. Many would ascribe volatility to the trends, but there have not been wild periods of peaks and troughs; only frustrated developers, blown pro forma’s and a construction industry wondering which tariff, tweet or trend will delay the project next. As General Contractors and Construction Managers we are left scratching our heads as much as owners and capital investors. In an industry very much still recovering from the recession, the uncertainty surrounding pricing across all market segments has been a thorn in the side of steady and measured growth. Skilled workers that left the industry after 2009 haven’t come back lead to increased construction durations which leads to more opportunities for price increases on contracted work.
Construction costs have been on the rise since early 2017. In the years since 2009 the overall industry would see one or possibly two increases in lumber, steel, gypsum and concrete. 2017 saw three increases in steel pricing by August. The steel tariffs set off an already hot market and pushed prices in 2018 up almost 12% so far. Trade disputes, fires and higher overall transportation costs sent lumber prices on a meteoric rise this January and will likely end at the highest average board foot price ever. Stick framed construction, the once go to, has become the red-headed step child of “value engineering”. Between last year’s hurricane season (Maria, Harvey, Irma) and 2018’s (Florence & Michael), the demand for gypsum board has pushed the material price increases up 30% for many gyp board products and that industry has seen almost 10% growth this year.
The market most impacted by the changing climate surely must be Senior Living. The Silver Wave (replacing the less politically correct “Silver Tsunami”) has at once helped increase the price, but also added to some of the uncertainty. For the next 12 years, 10,000 people each day will turn 65. This beginning milestone helped to ignite the building boom in Florida. The demand for Assisted Living Facilities, Skilled Nursing Facilities, Memory Care and Independent Living has been huge. The Sunshine State is one of the major retirement destinations and Florida’s regulatory agency for Assisted Living Licensure and Skilled Nursing Certificates, AHCA, posts bed numbers several times per year. From May 2015 through April 2018, a three year period there have been 10,722 Assisted Living beds added throughout the state.
Many Healthcare groups who began due diligence and pro forma’s in late 2017 and early 2018 are finding it difficult to maintain their original budgets, particularly if a General Contractor was not involved in Preconstruction to control costs. One trend we are seeing on the rise is the renewed interest in Independent Living. The average age of a senior entering Assisted Living is 82 and since the majority of the Baby Boomer population won’t hit that age until 2025-2028, ILF’s are looking more fiscally attractive and do complement an Assisted Living Facility well.
Another trend we’re seeing also has to do with the razor thin margins in ALF’s and the uncertainty in construction pricing. We have seen quite a few projects already drawn and permitted begin going through selective redesign. Projects that were two story are now going three or four story. Sprawling hardscapes in Aging in Place campuses are moving more towards tighter sites with multipurpose courtyards. Modular construction is on the rise so that a good portion of the submittal and envelope costs are done before the first shovel hits the ground saving General Conditions money and allowing quicker construction durations.
Another consideration for those facilities looking to offer “Aging in Place” services without building a full Skilled Nursing Facility are the ECC (Extended Congregate Care), LMH (Limited Mental Health), and LNS (Limited Nursing Services) certifications. Building to the I-2 Florida Building Code Standards of “Defend in Place” allow these additional services which can be of great benefit to residents. They double the time allowed for bed bound residents, allow admission of patients with NG tubes and pressure sores, as well as other services typically only found in Skilled Nursing Facilities. If the facility is designed at the onset to meet the criteria required the overall cost to comply is usually negligible and the licenses can be applied for at a future date if desired.
In Florida specifically, the costs per square foot in 2018 for buildings alone look a lot like the hurricane wind zone map. They are higher the closer you are to the coast and more economical when you get into the secondary markets in the middle of the state. We see this trend continuing next year as well in the Senior Living market. The current outlook is that the generally slower months of November and December will help stabilize pricing and return the certainty in construction costing back to the industry.