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Construction costs in Portland have increased just 0.1 percent over the past 12 months, compared to the national increase of 2.2 percent, Mortenson reported in its fourth construction cost index of 2023.

The overall outlook for nonresidential construction is cautiously optimistic, according to the report, as flattening material costs, decreasing oil prices, and confidence in the likelihood of interest rate cuts are somewhat offset by ongoing labor challenges and some continued areas of volatility.

Nationally, nonresidential construction costs tracked by Mortenson increased by only 0.07 percent in the fourth quarter of 2023, despite continued pressure on labor availability, the report states. The increase is the smallest since pre-pandemic business conditions and follows on the heels of a 0.19 percent increase in the third quarter.

Mortenson regional offices reporting cost increases this past quarter likewise again saw nominal gains, including Minneapolis (0.6 percent), Chicago (0.15 percent) and Phoenix (0.65 percent). Regional offices with essentially flat quarters included Portland (0.01 percent), Seattle (0.01 percent), and Milwaukee (0.01 percent). Denver even saw costs decrease 0.78 percent.

Subcontract work, which accounts for roughly 51 percent of the cost index weighted value, increased by 0.3 percent during the quarter, while construction materials (43 percent of the cost index) decreased by 0.2 percent and labor (6 percent of the cost index) remained flat.

According to an Associated Builders and Contractors analysis of data released by the U.S. Bureau of Labor Statistics, the construction industry saw a net gain of 17,000 jobs in December. Year over year, employment has grown by 197,000 jobs, pushing the industry unemployment rate down to 4.4 percent in December.

Nonresidential construction employment in the Portland-metro region totaled 9,000 in December 2023, Mortenson reported. This is a 6 percent increase (500 workers) from December 2022. An ongoing challenge is the availability of qualified workers – and their rising costs.

The possibility of interest rate cuts could improve the financing picture and help trigger new project starts in 2024, particularly in the second half of the year, Mortenson reported. Even as hiring continues unabated, inflation has cooled, and market watchers are expecting the U.S. Federal Reserve to cut interest rates by 1 percent to 1.5 percent over the course of the year, landing short-term interest rates at approximately 4 percent by December, based on forecasts.

While most material costs continue to stabilize, the index does show some volatility across mechanical, electrical and plumbing (MEP) scopes. While aluminum sales plunged in reaction to slowdowns in global industrial and real estate sectors, copper futures have surged as decarbonization projects drive demand for copper-rich electrification systems, according to Mortenson.

Global shipping costs for both raw materials and finished goods are likely to increase this year, as drought in Central America and piracy in the Red Sea complicate passage through the Panama and Suez canals, respectively.

Mortenson tracks seven metro areas: Portland, Seattle, Milwaukee, Chicago, Minneapolis, Denver, and Phoenix.