Skilled Nursing Construction Costs Continue to Rise

The cost of building new skilled nursing communities continues to rise due to labor shortages and a significant increase in the price of lumber.

Lumber prices increased 13% mostly due to the number of hurricanes and concerns over tariffs imposed on Canadian lumber, according to the winter 2018 report from construction firm The Weitz Company. As a result, mid-level skilled nursing projects have a price range between $197 and $231 per square foot, up from $193 to $227 in the previous quarter.

“Labor shortages will continue to be an issue for the foreseeable future, having the greatest impact on construction-related price increases,” Waitz observed in the report. “Some markets have experienced annualized construction cost increases in a 3.5% to 5% range, and more active markets increases in the 6% to 8% range.”

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Overall construction in the industry seems to be strong, as the Architectural Billing Index (ABI) rose to 55.9 in December 2017, up from 50.6 the previous month, Weitz observed in the report. The ABI serves as a leading indicator of construction levels, with a projected lead time of nine to 12 months ahead of actual building.

“When the architects are busy, it won’t be long until the contractors are busy,” Larry Graeve, senior vice president at Weitz, told Skilled Nursing News.

The biggest challenge developers are facing is making sure that construction starts on time — or they are likely going to face an increase in costs.

“The trouble spot, largely in the last two or three years, has been the misunderstanding that a project that’s going to break ground one year from now is [not] going to cost, roughly, per square foot, what it cost four years ago,” David Dillard, principal with D2 Architecture, told SNN late last year.

Written by John Yedinak

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