3 Ways Technology Can Alleviate Rising Construction Costs in Commercial Real Estate
by Evan Hill | February 9, 2023
It’s no secret that construction costs in commercial real estate are on the rise. According to the Bureau of Labor Statistics, building materials prices are up more than 19 percent year over year, with a total rise of almost 36 percent since the beginning of the pandemic. Compounded with other global events such as the Russia-Ukraine war and supply chain interruptions, the situation remains unpredictable for real estate developers. A recent report from CBRE forecasts a 14.1 percent increase in construction costs by the end of 2022, the largest jump in several years.
Construction material price volatility presents a challenge to project planning
Cost management is always a challenge for developers, but right now it’s especially problematic. When prices are volatile, it’s hard to plan projects because it’s impossible to know how much the materials will cost. Softwood lumber, steel, concrete, and gypsum products have all increased in price since the pandemic began — some dramatically, such as steel, jumped up over 200 percent from 2020 to 2021 — while others have now fallen back to lower price points.
The unpredictability of the market turns budget planning for commercial real estate construction projects into a guessing game. Prices of certain types of materials, such as plywood, insulation, and flat glass, have remained stable over the past year, helping developers with some aspects of planning, but prices of other products have become even more volatile.
How construction software technology can help
As a project owner, you might be watching the rise and fall of construction material prices with a sense of helplessness. There’s certainly not much anyone can do to reduce price volatility, but cloud-based construction software technology can mitigate the financial risks involved when you’re planning a new project. Here’s how:
- Achieve better financial administration and oversight.
Construction project management software allows owners to take command of cost management. With a comprehensive solution like e-Builder Enterprise, budget details, change orders, approvals, and more can all be tracked within the system, allowing you to know who you are paying, how much, and when. You can also integrate construction management software with your financials, allowing for even more streamlined budget control. Gaining access to cost details as they unfold helps you become proactive when materials prices fluctuate — and communicate any resulting changes immediately and clearly to contractors and subs.
- Generate accurate financial forecasts in real time.
With strong, accurate forecasting based on real-time data, you can anticipate changes, such as material price volatility, and plan for them before they happen. Using a data-driven cost management system allows you to mitigate cost risks and consider data on past project performance when you’re making decisions about present and future projects. Because e-Builder integrates cost capabilities with real-time workflow, everyone involved in a project can consistently see what funding is coming through on a budget or contract, allowing you to make better predictions and decisions.
- Facilitate closer communication between project stakeholders.
Construction project management software also allows you to stay in closer touch with project managers, engineers, contractors, and other stakeholders. The digital system becomes a central hub of project information, giving your people access to the data they need, when they need it. When everyone involved in a project can collaborate closely, they can more easily brainstorm solutions when materials prices take an unexpected leap, helping to minimize cost overruns.
While global events continue to impact construction materials costs, technology offers a solution for maximizing budgets and keeping all stakeholders on the same page as the market changes. By using a cloud-based digital construction management solution, you can rein in costs, improve visibility, and stay on top of every aspect of your project from beginning to end.
e-Builder Enterprise empowers you to monitor events and mine data from previous projects to help accurately estimate future costs. The platform can integrate with accounting solutions, including SAP, Oracle, Lawson, and others, allowing you to pull costs in directly and giving project managers everything they need to control costs and deliver on-budget projects without spreadsheets.
From funding to budget and change order management to invoicing, e-Builder covers all phases of the project life cycle, including capital planning, design, procurement and bidding, construction and facility operations.
Key Topics Covered: Construction Costs