The demand seen for building materials has caused a slew of headaches for contractors, including higher prices and product availability issues.
It’s customers who end up paying, tenant improvement companies say.
“Last year’s increase wasn’t as bad the previous year’s, but prices are going higher with no end in sight,” said Steve Richardson of Richardson Group in Orange.
Demand for steel, drywall, copper, aluminum, lumber, plywood and concrete is at unprecedented levels.
Richardson estimates his costs are up 20% to 30% from last year. Drywall has gone up 15% every quarter since 2004.
“Clients take on 100% of the increase in materials costs,” Richardson said.
Copper used for electrical wiring has been the most volatile material, with costs quadrupling during the past four years, he said.
A slump in homebuilding was expected to take some of the demand off, but it hasn’t happened.
Hunger for raw materials has been a global phenomenon, most notably in rapidly industrializing countries such as China and India. The phenomenon’s also being seen locally, with several commercial projects in the works for Orange County.
TI sales at Richardson are down about 10% from last year, yet the company has seen an increase in projects that are built from the ground up.
“We think we’ll see tenant improvement projects off about another 10% next year, too,” he said. “It’s just the way the market is.”
About 60% of Richardson’s business is in tenant improvement projects that involve malls and shopping centers and office buildings.
To better manage the projects Richardson has placed orders for materials as early as possible to lock in prices.
“I think availability has been a bigger problem than price fluctuations,” he said.
The need for raw materials has been so strong that suppliers are unable to keep their warehouses stocked.
Steel frames that go into the ceilings of office buildings, or T-bars, can take several weeks for delivery, according to Richardson.
Contractors are forced to think much further ahead than they did a few years ago.
Rising steel costs have also played a significant role in Tustin-based KNR Builders’ business.
“Everything keeps inching up,” President Kurt Werner said.
Still, KNR’s sales were up more than 20% during the past year to about $12 million.
“Pricing is all relative to the competition,” Werner said.
The company takes on projects for office and industrial buildings, and has expanded into building music studios and medical facilities.
Music studio projects,which require certain acoustic elements,and medical projects such as special rooms that house specific testing equipment have been part of some key changes at KNR.
“The more complex jobs have higher profit margins,” Werner said.
Anaheim’s Thorpe Construction Inc. brought in more than $16 million in revenue last year. Like its competitors, the rising cost of materials has been an ongoing reality.
“It ends up being more expensive for customers,” said Larry Finlayson, an estimator for Thorpe.
Higher costs for steel, drywall, copper and aluminum have been the biggest impact for the company.
Thorpe typically works on projects that are at least 48,000 square feet, such as schools and churches. It’s also working on a casino project in the City of Commerce for the first time.
