Each year brings new challenges in the construction industry, and 2022 is no different. COVID-19 has been with us for more than two years, and the decisions made by governments and businesses in the early stages of the pandemic are still affecting the markets today – and will for some time.
According to an analysis of government data completed by the Associated General Contractors of America (AGC), prices of construction materials jumped 20.3% from January 2021 to January 2022. The producer price index for new non-residential construction, which is defined as the prices charged by goods producers and service providers, also increased by 20.8% over the past 12 months. Steel, lumber, cement and copper prices continue to rise in 2022, and many expect it to keep increasing throughout the year due to construction activity and the Russia-Ukraine conflict.
While the effects from COVID-19 have been difficult on businesses, there have been some positive changes. To support the increasing demand of projects, companies are building new warehouses and distribution centers. In addition, more businesses are shifting to e-commerce, leading to the build out of data centers to provide the appropriate bandwidth for online business activity.
Distributors are having to get creative to meet their clients’ needs, such as selling units from their rental fleets that they might not have ever considered, utilizing the benefit of fully depreciating rental fleet equipment under the 2017 tax law changes. However, this could create tax issues at a later date.
Many contractors are realizing that with the lack of availability of both new and used construction equipment, they need to re-evaluate current inventory to ensure they have the equipment needed for jobs and to limit costs. We have seen a shift in contractors opting to buy equipment rather than rent it because their monthly payments are similar, if not lower, than their monthly rental payments. As rates start to increase, the cost to finance equipment will go back to being more expensive than renting, and you will see it shift back.
As we have seen so far in 2022, it has brought both opportunities and challenges to the construction industry.