How will COVID-19 Impact Construction Pricing?
As COVID-19 continues to impact the world’s economy, one of the main questions inside the construction industry is “What will happen to pricing?” Can we expect to see a major reduction in pricing, will it hold steady, or potentially increase? Before addressing this, let’s start by defining the main factors that impact construction pricing.
No single factor drives construction pricing. Numerous economic forces have varying degrees of influence, and this makes predictions about pricing somewhat challenging.
We currently know that demand for new construction is decreasing due to a contracting economy. Contractor backlog is beginning to shrink, and commodity prices are low. These three indicators point to an impending reduction in construction pricing. Because the construction industry typically lags the economy, an economic inflection does not equate to an immediate reaction. Instead, prices hold steady while the industry works through its backlog and assesses the economic situation. Then, as backlog levels begin to deplete, contractors are willing to take more risk and lower their pricing to secure additional work. Once the forces of supply and demand, backlog, labor costs, and commodity pricing reach a new equilibrium, construction pricing will level off, maintaining this new baseline until demand begins to increase once again.
So, what will happen to construction pricing? Currently, it has leveled off and will stay flat as contractors continue to work through their backlog Then we expect pricing to become more aggressive as backlog begins to shrink. However, these are unprecedented times. Predicting when and how prices might decline is, at best, a guessing game that does not necessarily lead to a fruitful construction experience. Ultimately, success is determined by working with a proven construction partner that can lower your risk and improve your return by:
The ARCO/Murray team wishes you and your team the best as we ride out this storm together. Good luck in the coming months and please contact us if you need help.