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    Despite increasing costs, Phoenix continues to see ‘explosive’ construction growth

    While the total number of construction cranes over downtown Phoenix decreased from the end of the first quarter to the end of the third, the count is not indicative of the “explosive growth” other areas of the Valley are experiencing, one expert said.

    Only two construction cranes towered over central Phoenix at the end of the third quarter, according to the Rider Levett Bucknall crane index, which is done twice a year. However, the count only includes a six-mile radius from Central Avenue and Washington Street.

    Scott Macpherson, executive vice president at Rider Levett Bucknall, said areas such as Tempe, the area around the Mayo Clinic and the Taiwan Semiconductor Manufacturing Co. plant site in north Phoenix, all of which are outside the radius for the count, represent major economic development growth in the Phoenix metro.

    Prices are up

    Phoenix’s construction cost increases slowed down slightly in the third quarter after a spike in the second quarter, according to RLB research.

    According to RLB’s quarterly construction comparative costs index, Phoenix’s costs increased about 6.6% from June 2020 to June 2021.

    Gas prices are among the indicators that Macpherson said he is watching closely for construction costs. In October 2020, crude oil cost about $40 per barrel, and has since doubled to just over $80 per barrel.

    “In the past, when the cost of crude oil went up, there is a direct correlation to construction costs,” Macpherson said. “There is a delay, but there is a direct correlation.”

    Macpherson said there are still pressures on the global supply chain from the Covid-19 pandemic, and the cost of oil directly impacts the price of transporting construction materials. General contractors and subcontractors often will pass on the costs of oil increases to their customers, increasing the overall development price of a project.

    Demand for skilled labor

    There is also still pressure for labor in Phoenix, Macpherson said, citing major projects, like the TSMC construction, as one that will require lots of skilled labor, which has become more difficult to find in the Valley.

    “A multibillion-dollar project like that creates real opportunity for people, but also, how do you meet those demands?” he said.

    Despite the increases in construction costs, Macpherson said he has not seen developers postpone or cancel projects because of price.

    “They are still able to get good rental rates for office, and for apartments, so we will continue to see lots and lots of development,” he said. “The rental rates will continue to drive new development.”

    Macpherson pointed to developments like the Grove, which RED Development is building at 44th Street and Camelback Road, which includes speculative office, hotels, retail and other uses as an example of high-quality development that has persisted during the pandemic.

    “They are extending the Camelback corridor farther east, which traditionally went from about 24th Street to 32nd Street,” Macpherson said.

    Going into the fourth quarter, Macpherson said he will be looking at the notices that subcontractors send out about increased prices for supplies that will take effect in the beginning of the year.

    As rental rates and construction costs, especially for residential, increase, Macpherson said the need for an increased focus on housing options that are attainable for young people graduating from the state’s universities will become even more pressing.

    “We need to work together to make sure students graduating have an opportunity to stay in the state,” he said.

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