The conflict in Iran is inflicting a new toll on U.S. commercial construction, with rising fuel and material costs pushing project expenses higher and risking delays.
The month-long conflict in Iran is hitting the U.S. commercial construction sector, pushing up costs for fuel, shipping, and key materials, which threatens to delay or derail projects. The March inflation report showed a 0.9% month-over-month increase, partly driven by the hostilities that have roiled supply chains.
"Looking forward, we’re going to see even more caution on the part of owners about going ahead with projects," Ken Simonson, chief economist for the Associated General Contractors of America, said.
The price shocks are widespread. The cost of PVC for piping has risen more than 50% since the start of the war, according to Rob Cantando, director of national strategic supply chain at Skanska USA Building. Aluminum prices have also jumped after bombings of smelters in the Middle East, and shippers are now charging a fuel surcharge of $600 per truck for roofing materials, Cantando said.
This comes after construction costs had started to stabilize in December, following years of pandemic-related supply chain issues. "We had just started to get to the point where [prices] were getting predictable," said Mike Holland, chief operating officer of Marek Brothers Systems. "This war just trashed that."
Despite the headwinds, construction of data centers remains a lone bright spot, fueled by unmet demand from hyperscalers. Data center construction spending was up 31% in January compared with the same month a year prior, according to U.S. Census Bureau data. In contrast, all other nonresidential spending fell 5% during the same period.
The construction industry's woes are part of a broader economic picture of rising prices. The March inflation report, the first to show the economic impact of the Iran war, revealed a 3.3% year-over-year increase in inflation. The conflict has exacerbated issues for an industry already dealing with elevated interest rates and a shallow labor pool.
This article is for informational purposes only and does not constitute investment advice.
