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Construction Cost Indices
After a decade of dramatic volatility for construction costs, the last four years have been relatively stable, with some indices showing increases of less than 1% for the last 12 months. Steel prices, a leading indicator of construction indices, declined from an average of $8201 per tonne in 2014 to $640 per tonne in 2015. However, they have shown recent increases, rising to $705/tonne in May 2016. The continued fall in fuel prices has also been a significant contributor to stabilization of construction costs. With labor prices predicted to increase 2.6% to 3.0% in 2016, overall annual construction cost trends are anticipated to be in the range of 1.8% to 2.5% for 2016, though they may end up below that level if material prices continue to decline.
|2013||2014||2015||7/2015 - 7/2016|
|ENR - Building Cost Index2||+2.2%||+2.7%||+1.7%||+2.7%|
|FM Global - US Industrial Buildings Average3||+3.7%||+2.9%||+1.9%||+1.3%|
|RSMeans - 30-City Average4||+3.1%||+0.5%||+0.1%||+0.5%|
|Marshall & Swift, US Average5||+1.7 to 3.2%||+2.1 to 2.4%||+0.2 to +0.9%||-0.3 to +0.5%|
Note: The range of change shown by Marshall & Swift represents different classes of construction.
Equipment Cost Indices
Equipment cost indices have not shown the same volatility as construction cost indices. Average equipment cost indices continue to show very moderate year-on-year changes in the -0.8% to 0.4% range.
|2013||2014||2015||7/2015 - 7/2016|
|Marshall & Swift/Boeckh - Industrial Equipment Avg.5||+0.9%||+2.0%||-1.0%||-0.8%|
|US Bureau of Labor Statistics - Producer Price Index for Finished Goods, Capital Equipment6||+1.2%||+1.2%||+0.7%||+0.2%|
|FM Global - Industrial Equipment Composite3||+1.7%||+1.6%||+0.8%||+0.4%|
Take care when selecting an index to track the rate of cost change for your company’s capital equipment. The three indices in the table above all track average capital equipment cost change percentages, and indicate the differences that have occurred over the past four years. Developers − as well as insurance brokers, underwriters and valuation consultants − can all recommend appropriate indices for your particular facilities. Select one that represents your capital equipment as closely as possible; there are significant differences between the average indices shown here and specific industrial-sector indices.
Always remember that cost indices are just average indicators of change; they are not absolutes, and there is no average building or average assemblage of equipment. After five to seven years, you should establish a new replacement cost basis by using a qualified valuation consultant.
1.MEPS (International), Ltd, All carbon steel products composite price and index
2.Engineering News-Record, Monthly Construction Economics Report
3.FM Global, Industrial Cost Trends
4.RSMeans, Construction Cost Indices, 30-City Average
5.Marshall & Swift/Boeckh, Marshall Valuation Service, Quarterly Cost Index
6.US Bureau of Labor Statistics, Producer Price Index for Finished Goods - Capital Equipment
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