Dana Farber Cancer Institute and Beth Israel Deaconess Medical Center’s proposed 450,000 square-foot cancer care center at 1 Joslin Place in Boston would include 320 patient beds. Image courtesy of Payette
There’s a new line item with a big question mark for developers drawing up project expenses as trade wars ramp up.
New tariffs on steel and aluminum will drive up the cost of projects in key industry sectors in Greater Boston, including health care and education, construction industry experts say. The upshot: potential budget overruns and delays for projects scheduled to break ground in the near future.
President Donald Trump on March 12 imposed previously-announced 25 percent tariffs on imported steel and aluminum, vowing to bring manufacturing back to U.S. factories.
“This is not necessarily traditional cost escalation,” said Steve Stouthamer, executive vice president of project planning for Skanska USA Building. “Often when your construction managers are providing you budget advice, there’s a budget for cost escalation. Our recommendation to our team is to consider the tariff separate from traditional cost escalation.”
Price Volatility Expected in Short Term
Tariffs pose risks both for projects under construction and those preparing for groundbreaking.
Contractors may try to wait out price spikes for raw materials, delaying projects already underway, ratings service Morningstar reported in a research brief. Some projects under construction may be canceled because of “immediate cost pressures” in sourcing materials, the report predicted.
Skanska USA Building hosted a webinar for clients last week offering suggestions on how to navigate the volatile environment. Developers and contractors are wary of potential price increases for raw materials and what it means for overall project costs, participants said.
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Despite Trump’s Tariff Delays
Suppliers began quoting higher lumber prices shortly after Trump on Feb. 5 threatened to place 250 percent tariffs on Canadian lumber, said Tom Park, Skanska’s vice president of national supply chain.
U.S. steel plants are operating at 73 percent of capacity, and could ramp up production to offset price increases from tariffs on imported steel, Park said.
And developers can mitigate risk by negotiating contracts with established unit prices for steel and aluminum, or tying prices to commodities indexes, Stouthamer said.
Anticipating Effects on Active Sectors
Increased costs could have immediate impacts upon Massachusetts’ health care industry and major institutional projects. The busy local “meds and eds” cluster has cushioned sharp downturns in previously active building sectors, including labs, office and multifamily housing.
Skanska executives presented a potential scenario for rising costs of hospital projects, driven by higher steel and aluminum prices. Raw materials typically account for 45 percent of hospital projects, according to data presented during the webinar.
Based upon data from 12 recent hospital projects in the U.S., the latest tariff increases would boost project costs by up to 5 percent on a project originally estimated at $375 million.
Massachusetts General Hospital is adding 482 patient beds in a $1.9 billion expansion project scheduled to open in phases between 2027 and 2030. A message was left with the hospital seeking comment.
Dana Farber Cancer Institute and Beth Israel Deaconess Medical Center are seeking approval for a new cancer care center at 1 Joslin Way estimated at $1.7 billion and spanning a projected seven years to construct.
North Reading-based Columbia Construction, which has specialized in health care projects since the 1970s, is taking a closer look at timing and sourcing of materials, President Shaun Lover said.
“It’s coming. If you’re sourcing your material the right way, there are a lot of things you can buy in the U.S. for cheaper,” he said.
Todd Barclay, head of investments for Framingham-based industrial developer Calare, said material vendors are already predicting price escalation.
“We’re taking a wait-and-see approach, and it’s certainly something we’re monitoring,” Barclay said.
Suppliers began quoting higher lumber prices shortly after Trump on Feb. 5 threatened to place 250 percent tariffs on Canadian lumber. iStock photo
Threats Emerge to Meds and Eds Projects
Local colleges are moving ahead with their own major real estate developments, but federal cuts to higher education could squeeze capital budgets.
Boston University recently submitted designs to city officials for a 12-story academic tower built with mass timber on Bay State Road. Northeastern University is seeking approval for a new 290,000-square-foot hockey and basketball arena, replacing the 125-year-old Matthews Arena.
The Trump administration’s cuts to universities’ research grants could pressure higher education budgets and delay big-ticket building projects, observers predict.
“We are likely to see a slowdown in education construction as a result, both on the higher ed side because of funding, and K-12 because of the direct government cutbacks,” said Serena Crivellaro, a managing director at KPMG.
Lumber tariffs would deal another blow to multifamily housing production, already reeling from the interest rate and project cost increases of recent years.
In a survey of its members, the Northeastern Retail Lumber Association found that 80 percent of dealers are being quoted price increases from suppliers. The group predicted rising costs for home construction and repairs.
Steve Adams
Onshoring Could Bring Manufacturing Gains
Brokerage JLL has tracked a 354 percent increase in industrial tenant demand since 2018, and predicts more growth of manufacturing in a higher-tariff environment.
More than half of the recent growth was driven by the Inflation Reduction Act, said Mehtab Randhawa, JLL’s global head of industrial research. The Trump administration has targeted clean energy projects for cutbacks, but corporate demand for onshoring of manufacturing is expected to continue in the coming years, according to JLL’s U.S. Manufacturing Renaissance report.
Manufacturing’s share of the industrial real estate market demand will rise from the current 19 percent to 25 percent by 2028, JLL forecasts.
“We don’t know what’s finally going to happen [with tariffs] and which sectors are going to be impacted to what extent,” Randhawa said. “But in the short term, corporate decision-makers have the need and want to bring manufacturing closer to the end consumer.”
