Report: Construction costs to rise 3% to 4%.

Byline: Brian Johnson

Non-residential builders in the Twin Cities should stay busy during the next year amid a steady backlog of work, but the cost of construction is likely to rise as unemployment remains low and the price of labor increases.

That's a takeaway from the latest Mortenson Construction Cost Index, a quarterly report that looks at trends in building material prices, construction employment and overall construction costs in Minneapolis-St. Paul and other geographic areas.

For the Twin Cities market, Mortenson recommends that owners should "plan on a 3% to 4% increase in the next year." Potential headwinds include an economic slowdown and "volatility due to tariffs as suppliers realign their supply chains," the report said.

Clark Taylor, Mortenson's vice president of estimating, said in an interview that the recommendation is consistent with longer-term averages.

The Minneapolis-St. Paul report looks at cost trends for 20 non-residential building components ranging from site concrete to flooring. From the second quarter to the third quarter of 2019, prices were flat in nine categories, higher in six categories, and lower in five categories.

During the first half of the year, Twin Cities construction costs were flat compared with year-ago levels. The national cost index ticked up 3.6% during that time.

One factor is the overall unemployment rate in Minneapolis, which is hovering at around 3%. That "continues to drive a tight labor market and increased wages, and we expect this will continue into 2020," the report said.

"We are a total cost index," Taylor said. "There are other indices that are more tied to commodities. And we want to make sure we are looking at what the owner is actually paying for the cost of a project."

Building materials with the biggest cost increases were site concrete, up 9.3%, and asphalt paving, up 4.4%. Owners paid less for HVAC systems (down 5%), structural steel/metal decking (down 4.1%), and install reinforcing steel (down 2.8%), among other components.

Site concrete includes construction elements outside of the building, such as sidewalks and curb and gutter, Taylor said. Site concrete and asphalt, he added, represent about 1% of a total building cost.

In separate reports released this week, the American Institute of Architects said design activity...