INSIDE
by Michelle Z. Askeland
Since the Great Recession ended,
construction costs in Colorado have
skyrocketed. The way property man-
agers budget tenant improvement
projects and building updates must
be adjusted to take the rising costs
into consideration.
“In 2014, the costs of construction
caught up with this rapid increase in
demand, and we saw costs increase
somewhere between 15 and 20 per-
cent,” said Doug Miller, director of
business development and precon-
struction at Alliance Construction
Solutions. “The 30-year average is
only 3 percent per year, so a 15 to 20
percent increase in costs in one year
is huge.”
On a typical commercial project,
a cost breakdown of the prime con-
tract amount will reflect 25 to 30
percent for project materials, 45 to
50 percent for direct labor, and the
balance goes to overhead adminis-
tration costs and profit, said Terry
Hordinski, Provident Construction
chief operating officer.
With the largest percentage of
the budget going to labor costs,
the undersupply of skilled labor in
Colorado makes the biggest impact
on rising costs. Hordinski estimates
that the cost of labor has gone up 10
to 15 percent per year for the past
three years.
It’s important to understand
what caused this shortage of labor
in order to understand its current
effects. A decade ago, the construc-
tion market was stable and expand-
ing each year, with costs on the rise.
That changed with the recession,
which began in 2008 but lagged in
the construction industry by about a
year, said Miller.
“In 2009, the rubber really met the
road, and we tumbled into the Great
Recession,” said Hordinski. “That
year and the next two years were
painful, both for prime and sub-
contractors. All contractors started
drastically cutting back their labor
force, especially in the residential
community, which directly affects
the commercial community because
you’re basically working out of the
same pool of labor.”
The reduced construction market
continued into 2012. “As a result,
you had a tremendous amount of
displaced workers, who went into
other fields to find employment,”
said Hordinski. “It is my personal
opinion that somewhere between 30
August 2015
Photo courtesy i2
For tenant improvement projects or common area upgrades, property managers should budget 15 to 20 percent more than they would have budgeted for the same project in 2013.
