Construction and maintenance costs are rising across the US, with copper, steel, and diesel price spikes threatening to erode net operating margins and complicate project underwriting for developers and property owners.
Copper prices rose 4.2% month-over-month and 27.2% year-over-year, indicating strong demand and inflationary pressure on construction costs.
Diesel prices rose from $5.32 to over $6 per gallon, affecting equipment and material transport costs, with potential further impact in later reports.
Steel prices increased 1.7% monthly and 23.4% annually, contributing to higher nonresidential construction input costs.
Nonresidential construction input costs climbed 1.3% in August, marking an 8.9% year-over-year increase, the fastest pace since November 2022. Surging prices for copper, steel, and diesel are squeezing net operating margins and complicating debt service capacity for commercial real estate owners already facing high financing costs.
Rising costs for materials and diesel fuel also affect ongoing property operations, including tenant improvements, capital projects, and routine maintenance, which can reduce net operating margins.