Recession Drives Construction Costs Down, Competition Up in British Columbia

The building industry in British Columbia, thee Canadian province set for the 2010 Winter Olympics, is still feeling the effects of the recession, which initially curtailed many new construction projects. But, it has also curtailed double-digit inflation on construction costs, which has been a given for many years.

According to a study conducted by BTY Group in cooperation with the Business Association of B.C, the cost of construction peaked in 2008, only to fall by a range of 5-25%, depending on the project. The result has been fewer projects, more competition, and a greater concentration of expertise.

Projects centered around infrastructure have shown the lower end cost reduction, where other projects such as luxury residential developments and low-rise projects represent the greater cost savings. Low rise costs per unit have lowered by about $50 per square foot when compared to 2008, where high-rise developments are estimated are lower by a rate of as much as $72 per square foot.

A good deal of the cost reduction has been employing fewer inexperienced tradespeople, concentrating wages on those with greater expertise. Further, the cost of incentives to keep those more experienced workers interested has also decreased, due to fewer projects on their schedules.

An additional level of lower costs is defined by the strong Canadian dollar, and more accessible pricing on commodity goods.

When the economy bounces back, and material costs rise …

As the economy springs back, an expected rise in costs will be about 3% per year, a typical trend in the industry. As commodity costs rise, and as currently shelved projects are restarted as recovery ensues, the construction companies will need to form long-term strategies around the issues of material costs.

Part of the work the local construction industry will face must be the preparation for an upsurge in competition for skilled labor as the economy bounces back. But, another will be in a few years when the depletion of that pool of skilled workers becomes an issue, due to retirements without younger workers in place to fill the gaps .

Weathering the storms of a new economy post-recession will also depend on the embrace of burgeoning technologies such as building information modeling. This is a newer technology which allows analysis of a building’s performance through its life-cycle via real time software applications before the project is constructed.  This technology is integral from architectural planning to construction and project management, and will allow more accurate forcasts of ROI.

Technology like this which centralizes information for all parties involved in projects will be the key in keeping operational and management costs low in order to even out the rising cost of commodity goods.

Competitive advantage may rest on the embrace of technology, centralized information, and greater efficiency and turnaround times, rather than simply on lower material costs.

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