Construction costs for office buildings, corporate interiors and parking garages in Houston will rise as much as 5% in the next year, according to a recent report from Kirksey Architecture.
In its 2019 Construction Cost Update, the company said the outlays necessary to build these types of projects will increase between 3% and 5%, primarily because of skilled labor shortages and concerns about how the current tariff environment will impact material prices. For corporate interiors, costs are rising as the market sees more activity in all levels of tenant build-outs/fit-outs — basic, mid-range and top-end — especially in what Kirksey calls the "tenants' market" for former Class A properties that are now offering attractive lease options and amenity upgrades.
Local permitting processing times, which, according to Kirksey, have been taking longer than usual, are also partially responsible for the increase in construction costs, as well as longer completion schedules. Other factors that are likely putting upward pressure on costs are the implementation of both a new energy code and stormwater regulations that were put in place after Hurricane Harvey devastated the Houston area in 2017.
In its report, Kirksey gives examples of how much construction costs have increased since last year, along with where those costs are expected to fall in the next year. Some of those are:
- High-rise office buildings: $117 per square foot to $164 per square foot
(2018: $113 per square foot to $156 per square foot)
- Parking structures: $31 per square foot to $55 per square foot
(2018: $30 per square foot to $50 per square foot)
- Basic office interior build-outs: $51 per square foot to $61 per square foot
(2018: $43 per square foot to $54 per square foot)
- Executive office space build-outs: $96 per square foot to $157 per square foot
(2018: $96 per square foot to $151 per square foot).
Kirksey compiles the information in its annual report using statistics from major contractors including DPR Construction, Gilbane Building Co., Hoar Construction, Skanska USA and SpawGlass.
Contractors around the country are dealing with the same uncertainty that comes with labor shortages and tariff-driven material price increases. In Southern Nevada, for instance, some contractors are having trouble, according to the Las Vegas Review-Journal, staffing the $26 billion of construction projects in the pipeline there, although officials from two of the most high-profile projects underway there — the Las Vegas Convention Center expansion and Allegiant Stadium, which will be home to the Las Vegas Raiders — report that they've been able to achieve a full workforce despite the pressures.
One shift that could take a little pressure off of those contractors trying to navigate the permitting process in Houston is that the Houston Permitting Center, the city's building department, plans to move to a paperless system for most commercial projects. Beginning Oct. 1, building plans needing a review must be submitted via the agency's new electronic system, which will be available 24 hours a day, seven days a week. The building department is offering free workshops on how to use the system in the run-up to the launch.