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Construction Costs Could Cause Delays

A growing number of retail projects could be put on hold in 2006 as the price of construction materials continues to rise as much as, or more than 2005, according to the Associated General Contractors of America.

“These rising costs are forcing some public owners to put projects out for redesign, rebid or outright delay,” says Ken Simonson, chief economist of the trade group in reporting projections for 2006.

Concrete material prices are expected to increase 10 percent to 15 percent in 2006, says Simonson, probably more than the 10 percent rise in 2005.

“The demand for concrete has been outstripping supply for several years,” says Simonson. “We've become more steadily dependent on imports.

”While there is enough production worldwide to meet U.S. demand, higher oil prices increases transportation costs for developers, says Simonson. The national average for diesel fuel was about $2.46 on Dec. 21, according to the Energy Information Administration. While that is down from a high of $3.16 in October, it is still up 18 percent from a year ago.

Costs for asphalt and plastics, that incorporate oil and natural gas in will also rise in price in 2006. Asphalt prices are expected to jump 10 percent, while plastics could climb between 10 percent and 20 percent, says Simonson.

The availability of steel could improve somewhat, according to the AGC, because India and China, which have competed for a giant share of available product, have been ramping up domestic production.

Scott Rehorn, one of the founding partners of Red Development, says developers are getting squashed between high construction costs and difficulty raising rents. Margins for new projects are becoming smaller. “If construction costs keep rising and tenants can't pay more rent, you got to figure out a solution,” says Rehorn. “Sooner or later, something's got to give.”

TAGS: Development
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