Hospital construction costs stabilize

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The last half of 2024 was a tumultuous one in the United States, although that would not be obvious from a cursory look at general trends in the construction costs of health care facilities. Since the midpoint of the year, the average cost per square foot rose barely an average of half a percent in nominal dollars, marking a welcome change after the volatility of previous cycles.

Even as some material inputs increased marginally, most regressed toward pre-pandemic pricing or remained flat. Long lead times for mechanical and electrical equipment, like switchboards, remained a factor in supplier pricing, but overall costing was relatively friendly to builders.

Regarding labor, the market appeared to be heating up again, with average annual growth in U.S. construction employment of more than 2% over last year and a small decrease to 4.6% unemployment, according to the Bureau of Labor Statistics’ November reporting. Gordian’s square foot benchmarks demonstrate this too, with a marginal increase in the non-material cost allocations per square foot for the benchmark models shown in the accompanying tables.

Since the start of the fourth quarter of 2024, the Federal Reserve made two cuts to interest rates, spurring additional take-ups on commercial project starts. With more likely to come, leading indicators of construction activity recently reported growth in the institutional sector for only the second time since June 2023. This bodes well for health care construction, as delays due to funding cycles may begin to erode, allowing projects to move through the pipeline with more velocity in 2025.