Optimism is growing for construction to pick back up as lumber costs have declined following a peak in May, according to the summer 2021 senior living construction costs report from construction firm The Weitz Company.
“We saw projects drop off at the beginning of the pandemic when everybody was in panic mode and shutdown, but since then we’ve seen projects come back and are now moving forward,” Larry Graeve, senior vice president of The Weitz Company, told Skilled Nursing News. “It’s a busy time right now.”
Prices for mid-level skilled nursing projects rose to between $244 and $285 per square foot during 2021, up from $230 and $269 in the winter 2021 report.
As lumber prices spiked, skilled nursing customers shied away from larger construction projects, Graeve explained, as he saw companies scale back their construction operations from what they initially planned due to rising costs.
“Let’s say they were doing a major expansion, it became a minor expansion,” Graeve said. “So they started doing it in incremental phases just to see how things were playing out. We saw a couple customers do that.”
The high lumber costs were due to a combination of things, including high tariffs, mills not being ramped up, and a huge demand in the home market, Graeve added.
“There was a point there where wood framing was almost as expensive as doing a metal frame building,” he explained. “So people were looking at metal. It’s really a balance of what the commodities are doing.”
Lumber was approximately $950 per 1,000 board feet to start the year, climbed to $1,950 in early May, then decreased to $800 per 1,000 board feet in July, according to the report.
“The whole lumber fright is waning. It certainly was in panic mode this summer when it was climbing so high,” Graeve said.
Steel prices have also climbed steadily in the past 12 months. Coil stock, used to make metal studs and metal decks, is up 216%.
The overall construction industry appears to be getting stronger, however, as the Architectural Billing Index, a leading indicator of construction activity, saw its highest quarterly jump in 12 years with a current index of 68.0.
“The index went up 17 points, which is huge,” Graeve said. “Anything above 50 points is a positive environment so 68.0 is pretty significant.”
Graeve noted that it remains to be seen how the delta variant might impact the construction market.
“[This report] tells me there’s a lot of optimism about construction moving forward and the construction industry being very busy,” Graeve said. “That also points towards more inflation and the construction industry being in a higher demand.”
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