Presale Buyers at NEXUS are Insulated from Rising Construction Costs
Construction activity is in full swing at the corner of Howell Street and Minor Avenue as NEXUS joins an estimated 68 other major projects that are dotting the Seattle skyline with tower cranes. A meteoric development boom coincides with a rise in construction costs as the Puget Sound Business Journal reports that Seattle is now the third most expensive market to build in, behind San Francisco and New York City. This claim comes on the heels of a report by Turner & Townsend, a British professional services firm that specializes in major project management and tracks development costs per meter in global markets. According to their research, Seattle costs increased by 5-percent in 2016 and are expected to increase another 5-percent in 2017.
“There is no doubt it’s very expensive to build in the city and getting pricier each quarter,” said Terry Bendrick of Burrard Group, developer of NEXUS Condominiums. “All this activity is exciting to everyone, except to the financial underwriters that are struggling to make new projects pencil in this climate.”
The Daily Journal of Commerce also covered Turner & Townsend’s report, adding that Seattle was just one of two markets in the 43 surveyed in the “overheating” category. “John Robbins, Turner & Townsend’s managing director for the U.S., said Seattle is overheating due to labor and material costs, too few contractors and the pace of work.” Forecasting indicates that both Seattle and San Francisco will see a 5 percent increase in construction cost over the next 12 months, well above “the global average of 3.5 percent increase for 2017.”
Bendrick says the entire Puget Sound region is responding to a record number of developments including residential, hotel, office, retail and build-to-suit urban campuses like Amazon and Google, not to mention major infrastructure projects like the Highway 99 tunnel and seawall replacement, the expansion of the Sound Transit light rail system and doubling the size of the Washington State Convention Center.
“The good news is our presale buyers have locked in their pricing so that’s not going to change,” said Michael Cannon, Sales Director for NEXUS. “It’s one of the benefits of being a presale buyer 30 months before occupancy.”
Cannon believes the rapid rise of construction costs has a silver lining to new homeowners of NEXUS because rising construction costs mean it will be more difficult for new condominium towers to offer homes at similar pricing.
“I could easily see prices rising another 10-percent alone on replacement cost, notwithstanding the supply and demand imbalance we are experiencing in downtown Seattle,” adds Cannon. “My advice to would-be buyers is to act now. It’s not uncommon for a developer to raise prices on unsold inventory in response to cost escalation and other market conditions – especially as inventory runs low on preferred floor plans.”
In order to lock today’s preferred pricing, prospective buyers at NEXUS are required to make a 5-percent earnest money deposit upon mutual acceptance of the purchase agreement with another 5-percent earnest money increase due by June 30, 2018.