Commercial builders share lumber price pain

May 19, 2021

One of the biggest challenges for the entire real estate building industry is the cost of construction because material prices escalated quickly during the past year. According to speakers at the May 6 Saskatchewan Real Estate Forum, it is difficult to estimate project costs and set lease rates for commercial properties as a result.
“If you have a pressure-treated 2×4 delivered, you’re putting it in your vault because you can’t afford it next week,” said Geoff Nagle, director of development for Morguard Investments. “We’ve had a 300 per cent [price] increase at a retail level on a 2×4 during COVID.”
On May 11, Home Depot was charging from $13.69 to $19.99 for a pressure-treated 2x4, double comparable prices from three months earlier.
Compared to the price one year ago when it was US$336 per thousand board feet, for the week ending April 23, 2021 the price of a standard Western 2x4 was up 296 per cent—or $994 per thousand board feet—according to Canadian Forest Industries.
One Saskatoon developer said his firm has had interest from companies looking for build-to-suit, but input costs are a concern since it’s difficult to set a lease rate to get a decent return.
Commercial developers may follow the lead of Canada’s home builders, some of whom are scaling back projects and limiting pre-sales due to surging input costs.
A Canadian Home Builders’ Association (CHBA) member survey in March 2021 found the average delay time in new home construction is six weeks. In addition to price increases for lumber and oriented strand board (OSB), prices are also on the rise for steel, appliances, plumbing fixtures, windows, doors and electrical materials—making them more challenging to get.
Some home builders are also limiting the pre-sales of homes, said CHBA CEO Kevin Lee.
“They build a few less houses at a time so they can be sure they get the prices on those materials and then release another block later,” Lee explained. “It’s very difficult to price your projects if the price of your input costs keeps going up during that period.”