The rising price of steel and other building materials might cause sticker shock for some developers, but the costs are doing little to curb building activity around West Michigan.
Although costs for various forms of steel have risen as much as 40 percent in recent months, general contractors, developers and building owners generally see it as a cost of doing business as they continue to push forward with numerous high-profile construction projects.
Roger Rehkopf, president of Grand Rapids-based general contractor Orion Construction Co. Inc., said his firm notices the increasing costs for many of its tower projects, including the Warner Building in downtown Grand Rapids and The Exchange in Kalamazoo’s central business district.
However, Rehkopf anticipates work to keep progressing on those projects for the foreseeable future.
“We really haven’t seen that drastic of a change that it’s taken projects off the table,” Rehkopf said. “We also think there’s going to be a point of stabilization here down the road, too. Everything kind of jumps and then hopefully it kind of stabilizes itself and right-sizes itself with the market.”
But just when that point of stabilization might hit remains a matter of debate, according to steel industry sources. Tom Hopping, owner of Builders Iron Inc., a Sparta-based structural steel contractor, said he anticipates no significant reductions in the next six months.
A report last month from research firm IHS Markit Ltd. noted construction costs have risen for 21 consecutive months, with steel prices rising faster than any other materials.
“Steel prices in the U.S. are at or near peak levels. What little relief is on the way will come later this year,” John Anton, director of pricing and purchasing for IHS Markit, said in a statement. “Pipe and tube prices have not peaked, but will climb through the rest of the year. If you buy from Brazil, Argentina or South Korea, you may need to find additional suppliers; supply shortages are ongoing in rebar, angles, pipe, and tube.”
The IHS Markit report anticipates materials and subcontractor labor costs to continue on an upward trajectory over the next six months.
Hopping says contractors are “getting hit from every direction” as the prices keep rising for steel direct from the mills and as the industry struggles to meet delivery schedules amid an ongoing truck driver shortage.
Still, he remains bullish on the construction industry.
“The market is not slowing down. I turn away more work than I could ever possibly do,” Hopping said. “It’s just busier than heck out there. The market is good ... and it’s part of being in business.”
Other executives appear to share Hopping’s sentiments. Several construction industry economic indicators point to ongoing activity in spite of the headwinds presented by rising costs.
Last month’s announcement from the U.S. Bureau of Economic Analysis that second quarter growth hit 4.1 percent — the fastest rate of quarterly growth since the second quarter of 2014 — contains good news for the nation’s construction industry, according to a statement from the Associated Builders and Contractors (ABC).
“Contractors can rest assured that the economy will retain its momentum through the balance of the year,” ABC Chief Economist Anirban Basu said in a statement. “While financial markets may remain volatile and the global news cycle will undoubtedly continue to swirl, leading indicators — including those related to the level of observable activity among engineers, architects and other design professionals — suggest that another wave of building construction is on the way.”
Indeed, the American Institute of Architects’ monthly Architecture Billings Index — which is considered a leading indicator for the building trades — shows anticipated future growth for construction.
The ABI hit 51.3 in June, a drop of 1.5 points from the previous month, but still indicating expansion for architecture billings.
“Architects continue to see increases in demand for their services this summer, with new project work coming in at a healthy pace,” AIA Chief Economist Kermit Baker stated.
Another report last month from the Associated General Contractors (AGC) might also be good news for West Michigan’s construction industry. It found Michigan added 1,300 construction jobs in the 12-month period from June 2017 to June 2018, an 8.1-percent increase. That was the third-highest percentage gain nationally, bested only by Arizona and Georgia.
In a separate report last week citing federal employment data, AGC noted the Grand Rapids-Wyoming and Kalamazoo-Portage metros stood out among Michigan cities as having nearly regained peak construction employment levels from the early 2000s.
Construction employment in the Grand Rapids-Wyoming metro area at 27,400 jobs was still down 4 percent from its peak for the month in 2000, but had gained back all but 1,100 positions.
The Kalamazoo-Portage metro area was within 200 jobs or 3 percent of its peak construction industry employment for the month in 2002. The metro ranked 10th nationally in terms of year-over-year percentage employment gains with growth of 14 percent, or 900 jobs, according to the report.
News of the continued construction employment recovery provides an added boost for construction executives’ optimism even amid the uncertainty presented by rising costs.
“We’re keeping an eye on the costs,” Orion’s Rehkopf said. “We want to make sure it doesn’t get crazy out of hand for us, but so far we haven’t seen anyone cancel (projects) yet. Could it slow things down a bit? Absolutely, it could slow things down, and an owner might wait to see what happens with steel prices. But so far, we haven’t seen that. Everything seems to be chugging ahead.”