Attachment J01 IHS_2025 Lower 48 Report.pdf

Indian Health Services

2025 Special Location Factors

27 November 2024

Project No: 240388

Prepared byllll ■

Indian Health Services 2025 Special Location Factors

TABLE OF CONTENTS

INTRODUCTION 2

Abstract 2

Methodology 2

Regional Construction Cost Driver Research � 3

Supai, AZ: Methodology and Notes� 6

2025 IHS Location Factors� 11

2025 IHS Location Factors Snapshot Analysis� 12

APPENDIX 14

Executive Summary � 15

Macro Market Analysis � 18

MSA REPORTS� 27

Completed Location Modifier Forms� 34

INTRODUCTION

Abstract was retained in 2024 to provide research and analysis services to the Indian Health Service (IHS) in furtherance of their requirement for yearly updates to their special location factors for construction.

performed outreach, analysis and factor development for thirty-five (35) locations across the contiguous United States. This report will provide the following information and documentation:

a. Explanation of methodology for data point collection

b. Overall analysis for 2024 domestic construction market

c. Analysis of factors driving individual area factors

d. 2025 Location Factors, including detailed backup of information.

Methodology

Special Locations Location Modifier (LM) Research largest task in this effort was to collect information about material costs, wage rates, and taxes at each of the special locations in aid of the completion of the Location Modifier (LM) forms, which CoreLogic uses in order to assemble final location factors. Our research included the following steps:

1. Research local and regional vendors for listed materials

2. Contact vendors to request costs of materials to locations specified by IHS

• In cases where one or more of these materials was not locally or regionally available we worked with vendors identify suitable alternatives for quotation. Instances of substitutions of this nature are identified on their applicable LM sheets (see Appendix)

3. Work with vendors to develop delivery estimates

• In some instances, this necessitated outreach to second party transportation providers for particularly inaccessible locations, e.g. Supai, AZ

4. Record the material costs on the Local Multiplier form, including notations regarding any special conditions for shipping and/or material acquisition

5. Perform research into local applicable codes and requirements for Prevailing Wage statutes

• In instances where Prevailing Wage structures are prevalent these have been used in the completion of the labor rates indicated on the LM

• In instances where Prevailing Wage structures are not prevalent we have utilized Davis Bacon wage rate

• Research state, county and local tax structures to determine applicable tax rates

6. These factors have been entered into the 2025 Annual Data spreadsheet with their 2023 and 2024 counterparts to provide a side by side comparison (see Location Factor Table).

Regional Construction Cost Driver Research As an additional component to the report, was asked by IHS to undertake an examination of local and regional trends that are driving construction cost movement in each of the areas under examination where it has facilities. In furtherance of this request, has performed analysis of the different metropolitan statistical areas (MSAs) that sit adjacent to each of the 35 different areas under analysis. As a part of this analysis examined unemployment, construction labor supply and absorption, material price movement, overall population growth and current/future projected construction volume.

Because of the relatively small size of most of the areas in which IHS operates facilities economic reporting in the form of calculation of local unemployment, Gross Metropolitan Product (GMP), construction labor pool availability, etc. is very difficult to locate- and even more so on a repeating basis. This repetition of reporting of economic attributes is one of the core fundamentals of an analysis of current/future activity and the area’s ability to respond, and as such it became necessary to look outside the immediate area to be able to find a sufficient amount of data on which to base an examination. In addition, these areas also provide major components of construction projects for each of these areas.

These areas are identified below along with the IHS area each supports.

1. Flagstaff

• Supai, AZ

• Kearns Canyon, AZ

• Red Mesa, AZ

• Tuba City, AZ

2. Phoenix, AZ

• Whiteriver, AZ

3. Tucson, AZ

• Sells, AZ

4. Boise, ID

• McDermitt, NV

5. Barnstable Town, MA

• Aquinnah, MA

6. Muskegon, MI

• Benzonia, MI

• East Jordan, MI

7. Duluth, MN

• Cass Lake, MN

• Sandstone, MN

• Hayward, WI

8. Minneapolis, MN

• Granite Falls, MN

• Morton, MN

9. St. Cloud, MN

• Onamia, MN

10. Jackson, MS

• Neshoba, MS

11. Billings, MT

• Wolf Point, MT

12. Great Falls, MT

• Hays, MT

• Ft. Belknap, MT

13. Bismarck, ND

• McLaughlin, SD

14. Albuquerque, NM

• Magdalena, NM

15. Oklahoma City, OK

• Clinton, OK

16. Tulsa, OK

• Ochelata, OK

• Wetkuma, OK

17. Rapid City, SD

• Kyle, SD

18. Dallas, TX

• Hugo, OK

19. Provo, UT

• Ft. Duchesne Green Bay, WI

• Watersmeet, MI

20. Wasau, WI

• Nekoosa, WI

21. Casper, WY

• Ft. Wakashie, WY

A table with "snapshot" summary of the conditions driving the cost for each of the 35 locations ascertained from this investigation is provided on page 12, and reports for each of the areas is included within the Market Report within the Appendix (see MSA Reports).

Supai, AZ

As noted in previous reports, the challenges of construction in the Supai, AZ area are significant. As a component to our research reached out to several different transportation companies, each of which would have a potential role to play in moving construction materials from the vendor to the project site, in order to ascertain the true cost of building in this area. While the outcome of this research is reflected in the LM form, we felt it would be appropriate to detail the factors/conditions that are present in the costs shown.

Supai, AZ: Methodology and Notes

Background

The Havasupai Tribe administers the land, which lies outside the boundary and authority of Grand Canyon National Park. The reservation was established in 1880 ands was substantially enlarged in 1975. Policing is provided by the Bureau of Indian Affairs Law Enforcement Services.

The 2010 census counted 208 residents in the village of Supai, which is located on the Havasupai Indian Reservation. The Havasupai are one of the smallest federally recognized tribal nations and have resided within the Grand Canyon area for more than 800 years.

Supai has been referred to as “the most remote community” in the contiguous United States by the U.S. Department of Agriculture. Supai is the only village on the reservation and is not accessible by road. The only methods of transportation in or out of Supai is by hiking 8 to 9 miles, helicopter, or mule team. The terrain in this area is quite dicey/dangerous.

The most unusual mode of delivery used by the Postal Service is the mule train. Since the 1930s, mules have been carrying mail and goods to the Havasupai people located near the Grand Canyon. 10-22 mules are used daily, along with one wrangler, 5 days a week, traveling about 8 to 9 miles down into the canyon to the Supai Post Office. This is the only remaining USPS post office in the USA that still must use mules for mail service.

Post Office Address: 100 Main Street Zip: 86435 County: Coconino

Materials Shipped From Flagstaff to Hualapal Hilltop Helipad near Supai

Hualapai Hilltop Helipad (Airwest Helicopter Service)

Air Transport from Hualapai Hilltop Helipad to Supai Helipad

Material Deliveries:

There are only two viable means to transport goods into Supai, via mule train or by helicopter. Either way, all deliveries must commence at the Hilltop Trailhead and campground parking lot. The helicopter landing pad is adjacent to the trailhead parking lot.

Material & Equipment Resources Availability

Most construction materials can be purchased at the three nearest major cities below:

NEAREST MAJOR CITIES

City Mileage to Hilltop Parking Lot Hours

Flagstaff, AZ 169 miles (see map Attachment A) 5 hours, 12 minutes Las Vegas, NV 227 Miles (See map Attachment B) 6 hours , 4 minutes Phoenix, AZ 269 miles (See map attachment C) 6 hours, 46 minutes

Mule Train

One Pack Mule can carry up to 4 bags with a maximum weight of 32lbs.

per bag, which translates to 128lbs per mule.

Maximum baggage size: 36 inches long, 19 inches wide and 19 inches tall. All baggage must be soft sided with nothing hanging off the outside. The cost per mule is $400 and subject to change, and reservations must be made in advance. The travel time between Hilltop and Supai is approximately 4 to 5 hours one way.

Helicopter

Haulapai Hilltop to Supai Helicopter service is only available by Air West. Air West has two diverse types of helicopters. Each is equipped with a 100-foot cable with cargo net.

• Special arrangements must be pre-scheduled for large quantiles of construction materials.

• Contact: Greg Barlow – (623) 516-2790

• Tribal Confirmation is required before transporting anything into the reservation.

Operations:

Normal Operation (March 15th - October 15th) Sunday, Monday, Thursday and Friday Winter Operation: (October 16th – March 14th) Sunday & Friday.

Unique Challenges

Weather Condition Challenges

SUPAI, AZ: WEATHER CONDITIONS

Month Temp

(Min) Temp (Max)

Rain Days

Precipitation Comments

January 31°F 55°F 2.8 days 1.34” Low temperatures not ideal for work outside February 33°F 58°F 2.9 days .08” Low temperatures not ideal for work outside March 38°F 67°F 5 days .09” Low or lost productivity 25% of month April 44°F 74°F 4.8 days .06” Low or lost productivity 25% of month May 52°F 84°F 4.5 days .07” Elevated temperatures June 60°F 95°F 1 days .04” Elevated temperatures low or lost productivity July 67°F 98°F 6 days 2.0” High Temperatures with heavy rainfall, Flash flooding August 66°F 96°F 5.7 days 2.4” High Temperatures with heavy rainfall, Flash flooding September 59°F 89°F 3.3 days 1.5” Elevated temperatures October 47°F 77°F 4.2 days 1.1” Approx 25% low or lost productivity November 37°F 65°F 2.5 days .05” Ideal conditions December 30°F 54°F 3.1 days 1.1” Low temperatures not ideal for outside work

Craft Labor Availability Challenges:

• Tribal Leadership approval must be obtained before any projects may commence

• All tradesmen must be brought in

• Housing is limited, and there is only one lodge within the village

• Campground is not open this year due to Tribal requirements

• Meals are a challenge as there are limited resources for large-scale production in the village

Material Challenges

Logistics is a challenge, considerations include:

• Coordination between supplier, trucking and transport into Supai

• Materials are not readily available nearby

• Size and weights are critical either by mule and/or helicopter

• Materials such as cement must be bagged for shipment and mixed on site

• Wet Ready Mix is not practical due to setup time between plane and delivery into Supai

• Waste dumpsters must be brought and removed by helicopter

• Sanitary Toilets must be shipped in and removed via helicopter

• Any type or kind of waste materials must be flown out by helicopter

• Any kind of temporary construction field office is a challenge

• High speed internet or cell phone service will be limited to local resources which may be a challenge

Heavy Equipment Challenges:

• Equipment such as backhoe, dozers etc. must be dismantled, flown to Supai in pieces and reassembled onsite.

• Fuel for equipment must be flown into Supai.

• Concrete mixers and or other equipment must be shipped unassembled and reassembled on site in Supai

Map: Attachment A:

Flagstaff, AZ to Supai Hilltop Parking Lot: 151 Miles

Map Attachment B Las Vegas to Supai Hilltop: 227 Miles

Map Attachment C Phoenix, AZ to Supai Hilltop: 269 miles

LOCATION FACTORS

2025 IHS Location Factors LOCATION FY25 Location

Factor FY24 Location Factor

FY23

Location Factor

3 Year Average

Percent Change YoY

Kayenta, AZ 1.13 1.07 1.10 1.10 5.61% Keams Canyon, AZ 1.05 1.06 1.13 1.08 -0.94% Red Mesa, AZ 1.03 1.03 1.14 1.07 0.00% Sells, AZ 1.04 1.03 1.01 1.03 0.97% Supai, AZ 3.40 3.40 3.44 3.41 0.00% Tuba City, AZ 1.02 1.05 1.03 1.03 -2.86% Whiteriver, AZ 1.00 1.02 1.04 1.02 -1.96% Aquinnah, MA 1.51 1.52 1.48 1.50 -0.66% Benzonia, MI 1.12 1.08 1.14 1.11 3.70% East Jordan, MI 1.13 1.13 1.17 1.14 0.00% Watersmeet, MI 1.20 1.19 1.21 1.20 0.84% Cass Lake, MN 1.23 1.23 1.31 1.26 0.00% Granite Falls, MN 1.24 1.28 1.34 1.29 -3.13% Morton, MN 1.20 1.21 1.26 1.22 -0.83% Onamia, MN 1.39 1.34 1.37 1.37 3.73% Sandstone, MN 1.43 1.40 1.47 1.43 2.14% Neshoba, MS 0.93 0.96 0.91 0.93 -3.12% Browning, MT 1.06 1.07 0.98 1.04 -0.93% Ft. Belknap, MT 1.08 1.10 1.01 1.06 -1.82% Hays, MT 1.06 1.07 1.01 1.05 -0.93% Wolf Point, MT 1.10 1.08 1.06 1.08 1.85% Belcourt, ND 1.05 1.04 0.98 1.02 0.96% Magdalena, NM 1.04 1.06 0.99 1.03 -1.89% McDermitt, NV 1.32 1.30 1.23 1.28 1.54% Clinton, OK 1.09 1.08 1.07 1.08 0.93% Hugo, OK 1.01 1.06 0.97 1.01 -4.72% Ochelata, OK 0.96 0.97 0.93 0.95 -1.03% Wetumka, OK 1.00 0.96 0.99 0.98 4.17% Kyle, SD 1.03 1.05 1.12 1.07 -1.90% McLaughlin, SD 1.03 1.02 1.09 1.05 0.98% Ft. Duchesne, UT 1.06 1.05 0.98 1.03 0.95% Nespelem, WA 1.31 1.31 1.25 1.29 0.00% Hayward, WI 1.27 1.26 1.19 1.24 0.79% Nekoosa, WI 1.28 1.29 1.21 1.26 -0.78% Ft. Washakie, WY 1.01 1.00 0.92 0.98 1.00%

2025 IHS Location Factors Snapshot Analysis Though has been responsible for the development of the FY 2023-2025 location rates provided to IHS, it is important to remain aware that all prior FY factors were developed by a separate entity with an unknown development methodology. Though these historical factors have begun to filter out of moving average and trend analysis as they are now outside the three-year window, they will continue to provide a historical reference for current pricing. 2024 has continued the nascent trends seen at the end of 2023 with material costs and competing project volume continuing to return closer to normal levels across most MSAs, especially in the private sector construction submarket. Energy pricing has continued to exert an upward influence on costs, however, and with conflicts in the Ukraine and Middle East this condition is expected, if anything, to become more pronounced in the near to mid-term future.

Most of the areas surveyed continued to report strong construction markets relative to market capacity to take on the demanded volume. Importantly, though, the common theme continues to be the limiting factor of available, capable construction labor. Labor and energy costs will be the headline concerns in the construction industry in 2025, a condition that is likely to be exacerbated by federal policy choices by the incoming Presidential administration in 2025. Declining interest rates, lowered low-cost labor inputs and expected material tariffs will all have the effect of pushing construction costs upward. We have compiled the table below that lists brief reasons for the cost movement in each area examined. For a more in-depth analysis of the conditions effecting each area, please see the Appendix.

LOCATION FY24 Location Factor FY25 Location Factor Percent Change YoY

Kayenta, AZ 1.07 1.13 5.61% Keams Canyon, AZ 1.06 1.05 -0.94% Phoenix, AZ 0.99 0.97 -2.02% Red Mesa, AZ 1.03 1.03 0.00% Sells, AZ 1.03 1.04 0.97% Supai, AZ 3.40 3.40 0.00% Tuba City, AZ 1.05 1.02 -2.86% Whiteriver, AZ 1.02 1.00 -1.96% Aquinnah, MA 1.52 1.51 -0.66% Benzonia, MI 1.08 1.12 3.70% East Jordan, MI 1.13 1.13 0.00% Watersmeet, MI 1.19 1.20 0.84% Cass Lake, MN 1.23 1.23 0.00% Granite Falls, MN 1.28 1.24 -3.13% Morton, MN 1.21 1.20 -0.83% Onamia, MN 1.34 1.39 3.73% Sandstone, MN 1.40 1.43 2.14% Neshoba, MS 0.96 0.93 -3.12% Browning, MT 1.07 1.06 -0.93%

LOCATION FY24 Location Factor FY25 Location Factor Percent Change YoY

Ft. Belknap, MT 1.10 1.08 -1.82% Hays, MT 1.07 1.06 -0.93% Wolf Point, MT 1.08 1.10 1.85% Belcourt, ND 1.04 1.05 0.96% Albuquerque, NM 0.98 0.94 -4.08% Magdalena, NM 1.06 1.04 -1.89% McDermitt, NV 1.30 1.32 1.54% Clinton, OK 1.08 1.09 0.93% Hugo, OK 1.06 1.01 -4.72% Ochelata, OK 0.97 0.96 -1.03% Wetumka, OK 0.96 1.00 4.17% Kyle, SD 1.05 1.03 -1.90% McLaughlin, SD 1.02 1.03 0.98% Ft. Duchesne, UT 1.05 1.06 0.95% Nespelem, WA 1.31 1.31 0.00% Hayward, WI 1.26 1.27 0.79% Nekoosa, WI 1.29 1.28 -0.78% Ft. Washakie, WY 1.00 1.01 1.00%

APPENDIX

CONTENTS

Executive Summary 15 Purpose & Methodology� 15 Market Volatility� 15 National Construction Market� 15 Key Takeaways� 16 Factors of Escalation � 17

Macro Market Analysis 18 National Escalation Rate� 18 Projected Construction Activity� 20 Inflation & Medium Term Wage Growth� 21 Material Pricing � 22

MSA REPORTS� 27

Completed Location Modifier Forms� 34

Executive Summary

Purpose ci)_ Methodology

To support the US Department of Health and Human Services Indian Healthcare Services division ability to accomplish planning and budgeting for projects across their national portfolio,_ was tasked with providing a market study to characterize current and projected construction market conditions. This study is provided as a "snapshot" look at the current economic conditions and is reflective of the construction sector as of Q3/Q4 2024. With the changing of Executive leadership at a federal level and the likely policy changes resulting therein that this forecast is likely to change significantly over the next twelve (12) months.

Market Volatility

Federal measures to contain inflation via increase rate increases have been largely successful, so much so that current inflation at 2.6% is less than 1% above it's pre-COVID number of 1.9% and roughly¼ of the high of 9% reached in 2022. This increase in rates has been sufficient to drive up borrowing costs and lower private sector construction investment, which has eased absorption of both materials and labor. Weighing against this are both large national infrastructure investment programs and geopolitical conflicts, which are serving to keep costs higher than they would otherwise be. Overall, volatility in the construction markets has eased significantly over the course of 2023/2024. Anticipated rate cuts in 2025 will shift the private sector growth back into expansion.

National Construction Market

With COVID-era volatility firmly behind us, relative stability has remained over the last 12-18 months in the construction market.

As interest rates are gradually reduced, we expect to see some acceleration in overall escalation (relative to the aforementioned preceding 12-18 month period) as demand is restimulated across the private sector. The brunt of this revived demand will not likely be felt in construction contracting until late 2025.

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BY THE NUMBERS

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DATA S ANALYTICS

45.0 August 2024 AJA Architecture Billings Index (-50 considered pessimistic)

+0.9% Change In Turner Building

Cost Index (Q2 '24-Q4 '24)

+.99% ENR Construction Cost Index - National Average (Yo Y, October 2024)

5.20% Dodge Institutional

Building Momentum Index (MoM, October

2024)

+2.41% Consumer Price Index (%Change YoY, September 2024)

Key Takeaways

1. As noted in previous reports, price surges across most major material categories have subsided over 2024, with exceptions for concrete and mechanical/electrical/plumbing components. Interest rate increases have successfully tempered inflation without, to date, triggering an economic recession. As we move back into lower rate territory the economy’s ability to remain stable, e.g. low-cost inflation, will become a key.

2. Though decreased levels of overall construction volume have provided some relief in terms of labor absorption, the asymmetry between supply and demand persists, and is likely to become more pronounced in the next two (2) to five (5) years. This is likely to be paired with changes in immigration policy that will have a deleterious effect on the supply of lower wage tier earners in both the construction and manufacturing sectors, which will further increase labor costs.

3. Continued general optimism towards material pricing forecasts is caveated with three acknowledgments: a) The U.S. is at the beginning of a structural realignment as it relates to domestic production emphasis- the growing pains of which could cause new rifts down the line. b) Domestic prioritization of increased movement towards electrification of building utilities/increased sustainability will continue to manifest by way of upward pressure on MEP building components. c) Increasing geopolitical tensions across the globe will continue to provide an ongoing, and potentially significant, rationale for premiums within energy markets.

4. Across most MSAs examined, private construction volume reduction has been significant enough that contractors are pivoting to bidding public projects wherever possible as a method for shoring up backlog. This has increased contractor turnout on public bids, and is providing better value for money on these projects than had been noted since the pandemic. That said, it is important to note that even given these conditions, most contractors surveyed continue to see three (3) bids or less on most projects.

Factors of Escalation

Before the discussion on escalation, it is important to emphasize and illustrate the factors and components that make-up cost escalation - a primary subject of this report- and how those differ from one of the component parts, inflation. While cost escalation includes inflation, other economic variables make calculating the escalation factor for any one specific industry and/or region a more complicated exercise. Escalation isa combination of variables; any number of which can vary from expectations in response to ordinary or extraordinary market activities, as seen during the past global COVID outbreak.

At the same time, it is valuable to try to parse what is likely permanent and what is likely conditional. While the specifics and contextual variables are too numerous to fully quantify, the underlying principle of temporary spikes is important to apply to this analysis. For example, temporary spikes in price due to prolonged supply access shortages (real or contrived) should not necessarily dictate the calculus of the authoritative ‘new normal’ in terms of pricing and growth rate. This is critical to realistic projections of future escalation, which rely on a current period denominator.

The figure above is reproduced from the Secretary of Defense’s 2017, “Inflation and Escalation Best Practices for Cost Analysis: Analyst Handbook”.

Macro Market Analysis

National Escalation Rate

By a number of metrics (including ENR CCI, ENR BCI, BLS Non-residential Construction Cost PPI), the historical average annual construction cost escalation rate is approximately 3.2% per year. Counter to this trend, the years 2021 and 2022 registered construction cost escalation rates of 4.8% and 19.9%, respectively. As forecasted by 2023 saw a regression to more typical rates of change, with average Year-over-Year (YoY) escalation settling around 7.5%. In fact, December 2023 data shows a net-effective change of near-zero percent compared to December 2022. Looking at Federal Reserve Economic Data (FRED) final demand Producer Price Indexes, 2024 has thus far seen YoY index value changes as follows (as of May’s reported data for each):

CONSTRUCTION DEMAND

PPI CHANGE YOY

NEW NON-RESIDENTIAL -1.00%

GOVERNMENT CONSTRUCTION -0.70%

HEALTHCARE CONSTRUCTION -1.50%

In the short to medium term (1-5 years), we forecast a slightly above-historic-average annual escalation as labor shortfalls continue to have a significant impact on construction pricing.

At a nominal level (black line), Total Nonresidential Construction Spending (TNRCS) in the US has rebounded from post-pandemic-onset dip since September of 2021, with annualized rates of construction spending reaching new highs nearly every month since.

Importantly, though, the reported spending values are not controlled for inflation; monetary or otherwise.

While it is difficult to apply a perfect adjustment methodology, the graph below demonstrates the results of adjusting the data to reflect 2012-dollar values (green) and, alternatively, to 2019 dollars (blue) and via a 12-month preceding rolling average inflation adjustment (gray). In all three (3) scenarios, it is clear that the aggressively upward trend in nominal spending was not likely reflective of actual volume of work being accomplished. This is an important filter for the data so that one may understand the other factors (discussed later in this report) that are driving construction costs in addition to volume of demand.

As seen in the graph, by any of the metrics, nominal or inflation-controlling, construction spending (volume) has all but peaked as of mid-2024. This leveling was brought about by higher interest rates and a realization of gaps in backlogs due to projects canceled in 2023 due to budget misalignments.

Looking forward, as interest rates are now being stepped downward, we expect more private (and public) projects to restart over the next 6 months. In turn, this is likely to result in an uptick in overall construction spending (volume), particularly in the last quarter of 2025 and into 2026.

The following pages discuss several of the factors that will contribute to changes in construction costs.

Projected Construction Activity

The Architecture Billings Index (ABI) is a leading indicator of future construction activity by roughly 9-12 months.

Looking at the last 12 months of reporting, we can see that the ABI has tracked well with general post-COVID lock down momentum. And with that, since November of 2022, index readings across each of the country’s four major regions have hovered around or below the 50 mark - indicating comparatively falling interest and activity levels among architects.

Though readings across all areas currently sit below 50, the West region has both the lowest overall number and was the first to slip into contraction. Conversely, both the South and MidWest regions slipped into contraction earlier this year, but have had a larger declination in overall volume over the period.

It should be noted that this is primarily applicable to the macro level of the regional construction economy, and shouldn’t be taken as strictly indicative of future capacity or ‘hunger’ for the specialty or well-experienced contractors necessary for unique IHS projects.

Due to the remote locations and specialty nature of IHS projects these projects are likely to move somewhat differently than larger, more standardized projects. Although this means that they are likely to not experience the same degree of savings in deflationary environments, they are also less prone to upward swings during expansionary times.

October 2024 Architecture Billing Index

Inflation & Medium Term Wage Growth

Capital infusion into the US economy combined with historically low interest rates in 2021 and 2022 resulted in monetary supply growing at an unprecedented rate, as seen for example, in the graph below. This monetary growth, combined with supply chain disruptions and temporary energy pricing spikes, created aggressive monetary inflation.

As a correction, the U.S. Federal Reserve worked to increase Effective Federal Interest Rates (Fed Rate) at a rapid pace. Now, two and a half years later, interest rates were reduced as inflation has returned closer to target levels (typical target is 2.0%). The Federal Reserve has forecasted targeted rate cuts down to 4.25% – 4.5% by the end of 2024.

The specific effects of this interest rate pull back will take sometime to be realized – likely a year-plus. We expect the net effects to likely include:

• Stabilization of monetary inflation, with some potential for it to maintain above the 2% target through 2025

• Increased demand for investment as bond returns become less attractive to investors

• Sustained upward pressure on labor wages, particularly in construction, particularly if monetary inflation sustains above the 2% target range.

Material Pricing

A primary contributor to many of the material price spikes of the COVID era, transoceanic shipping disruptions and cost increases reached previously unimaginable levels in 2021 and early 2022. Drewry Supply Chain Advisors, which tracks and publishes container shipping costs, is currently tracking the composite cost of shipping containers at roughly $3,162/40 ft container, or approximately 17% above pre-pandemic average pricing levels.

As mentioned previously, conflict in the Middle East, and particularly in the Red Sea that serves as access to the Suez Canal, has caused disruptions and high volatility in global shipping. This remains one of the ever-present risks to budgeting forecasts as the cost of imported goods impacts all levels of the material and operations supply chains.

Previously forecasted trends of easing in material pricing volatility have continued to materialize over the last three months, with most major categories reporting some level of negative change year over year according to the most recent data (May 2024). The table on the following page outlines the changes across major categories for the last 1, 3, 12, and 24 months. The table focuses on major components and materials of most notable importance to the healthcare construction projects at the focus of this study.

Looking forward, the most impactful item of note is copper wire and related copper-heavy materials. Recent market dynamics - namely compounding demand-side pressures from EV, defense, and other industries - have started to push copper futures and has commanded pricing up.

The chart below highlights the year-over-year price movement of all construction material costs over the last 3+ years through the worst of the pandemic woes. At its peak, the spike from pre-COVID pricing levels reached +50%. At present, the net change from 2019 average pricing to today sits at just under 40% in total, with many materials and commodities seeing stabilization over the last 3-6 months. For reference, had the pandemic not happened and average yearly increases been registered in 2020-2023, we would expect the next change from 2019 (average) to present to have been closer to +15%.

Role of Energy in Construction Costs

Energy, specifically by way of petroleum products, is one of the largest contributing factors to the cost of construction of any type. From concrete manufacturing to plastic products and material delivery, energy is a cost applied to nearly every construction activity. Accordingly, it is important to note that any potential improvement in the cost of other raw inputs will be partially, if not fully, offset by sustained, elevated energy prices. As seen in the chart below, energy was already the highest fluctuating input to construction. Low cost oil and natural gas through much of 2020 muted some price hikes in costs related to domestic transportation and delivery operations.

At present, the war in Ukraine and conflict in Gaza are ongoing with no clear path to cessation in sight. Current developments in the Middle East could escalate trade friction between the US and several different significant OPEC countries, which could in turn raise doubts about the viability of shipping through the Straights of Hormuz and, correlatively, the world supply of light sweet crude. To date oil pricing has stabilized, in large part by record levels of domestic production. While there is no reason to forecast imminent reduction in domestic production, disruptions to refinery operations or other supply chain interruptions would pose a black swan event-like risk to energy pricing.

Future Escalation Projections

As discussed, the factors contributing to escalation are numerous. Many of these factors are also well outside of domestic control and influence. Following is a brief overview of some of the primary contributors and indicators of escalation and their projected directional trends.

While the volatility levels keep confidence intervals suppressed, has developed a projection of national escalation rates based on current economic conditions and forecasted future impacts. Through 2024, we anticipate an aggregate rate between roughly 4-6% escalation YoY.

ESCALATION PROJECTIONS

Year Low Range High Range

2025 3.7% 4.3%

2026 4.0% 5.0%

2027 5.0% 6.0%

2028 5.0% 7.0%

Avg. per annum 4.4% 5.6%

FACTOR SUMMARY IMPACT ON COST

Market Volume & Interest (Discussed in greater detail in following pages)

Nationally interest rate increases have largely been successful in tamping down demand for private sector services, though this is anticipated to reverse later in 2024. Public construction continues to perform well, and has been the beneficiary of reduced private sector volume.

Downward

Monetary Inflation Reductions in interest rates over the course of the year from recent highs of 5.25%-5.50%, reached in 2023, to 4.50%-4.75% have been made in response to cooling inflation and overall reduced economic activity. Further reductions in 2025 are anticipated.

Reduction

Materials Pricing As expected in previous analysis, the worst of the material price increases have largely come and gone.

With the exception of concrete and materials used in mechanical, electrical and plumbing all major tracked categories of materials have declined in pricing, and in some cases have receded closer to their pre-COVID levels, e.g. steel and lumber.

Downward

Energy This factor is near fully out of the control of domestic Neutral-to-Upward actors and policy makers. Proceeding with an appropriately risk-adjusted outlook is pragmatic and suggests factoring in elevated energy costs for the next three (3) to four (4) years.

Neutral-to-Upward

Labor As mentioned already and detailed at the local level on the following pages, wages are likely to continue to grow at an above average rate over the next four years. While overall demand (in physical volume) for construction has actually slowed, this lower level has still kept the employment base fully absorbed. This is anticipated to become more pronounced in Q2/Q3 of 2025 as historical labor sources.

Upward

MSA REPORTS

Albuquerque, NM� 28

Great Falls/Billings, MT� 30

Dallas, TX� 31

Casper/Cheyenne, WY� 33

Albuquerque, NM

2024 has seen a slight stabilization of construction cost in the Albuquerque submarket. Double-digit year- YOY growth in 2022 and 2023 has given way to a more staid growth pattern in 2024, with total construction volume contracting from $3.5bil. in 2023 to $3.3bil. in 2024. Residential construction continues to comprise a significant portion of the market $950mil., and with approximately 4,000 new single and multi-family units under construction demand appears to still be outpacing supply- a fact demonstrated by the fact that permits for future planned construction projects has actually risen 16% over the level seen in 2023. Average single-family home prices have increased a modest 3% YOY, and with 8 active master-planned communities, multiple multifamily projects and mixed use projects like the Nuevo Atrisco Plaza in production, and interest rates anticipated to decline this sector is anticipated to continue to see continued growth.

Though overall infrastructure spending has declined almost 50% from 2023 to a total of $350mil. One of the largest horizontal projects in state history is currently underway with the construction of the $270mil. I-25 corridor project, as well as multiple lane widening/road improvement projects With residential construction showing little sign of abating, it is anticipated that these projects will remain a critical need for the foreseeable future as the area continues to strain to accommodate new residents.

Healthcare construction has, unsurprisingly, followed larger population growth patterns as more facilities are required to service the influx of residents. Several large projects are ongoing in the area, including the UNM Hospital CCT (Critical Care Tower) and the UNM Children’s Psychiatric Center replacement project, with more planned for the future. Total construction volume for the sector is anticipated to close the year slightly higher than projections at $385mil., and is sitting at roughly 800% of the level seen in 2021. The strain on area labor supply is translating to lower bidder turnout, especially as a subcontractor level, and higher bid pricing, especially across heavily used trade specialties. Anecdotal reports from contractors surveyed of the same HVAC and Electrical subs showing up on all the bids received on multiple projects were common during outreach, and contractors have reported that those bids they are able to get are coming with implied premiums due to the need to acquire traveling workers and/or compete with other projects for highly skilled employees.

Total employment across the construction sector has increased slightly over the course of the year and currently stands at approximately 30,000 full-time positions, once again setting a new post Great Recession high for the third consecutive year. Despite these continued increases in total jobs opportunities in the sector remain high, with almost 800 full-time positions advertised as available for qualified tradesmen.

Unemployment for the area is almost 1.5% above the post COVID low of 2.8%, reached in December of 2022, but it should be noted that the current number at 4% is only 10 basis points above the long-term average of 3.9% and should be constituted as indicative of a largely utilized labor force.

Great Falls/Billings, MT

In contrast to some other areas surveyed, the Montana market has continued to see significant YOY growth in construction markets over the course of 2024. Total construction employment reached just over 40,000 full-time workers in Q3 of the year, which is traditionally the calendar high water mark for employment in the sector, and this constitutes a 10% increase from the level seen at the same time in 2023, as well as a 30% increase over pre-COVID levels in 2020. Area unemployment has increased by almost 50% over the course of 2024, but it should be noted that this is both because it was at an all time low in 2023 and, at 3.3%, is still well above both the Montana historical and nationwide averages. Despite this increase in available labor, area contractors continue to report premiums for experienced tradesmen across most major categories including carpentry, oversight and heavy equipment operators, in addition to previously established shortages in mechanical, electrical and plumbing. Contractors continue to report the bulk of traveling workers coming from the Denver MSA, which is increasing both wages and per diem costs, and we don’t see a significant catalyst that will drive change in the next two (2) to four (4) years.

From a sector perspective, 2024 construction volume in Montana has been heavily predicated on residential and utility/infrastructure projects. Total construction in the state has increased by roughly 10% YOY to $1.2bil., with roughly half of that concentrated in infrastructure and utility projects. Though total nonresidential building construction has increased in 2024 from the year prior, it is still sitting at roughly 1/3 of total infrastructure spending, and only $20mil. more than the total amount of residential construction. Residential construction, which was forecasted to reduce in 2024, has actually increased from 2023- which, in tandem with the formwork needs for concrete on infrastructure work, accounts for the increased absorption in the carpentry and heavy equipment trades.

Dallas, TX

After seeing sustained, double digit growth in 2022 and 2023, 2024 has proven to be a moderating period for the Dallas MSA. Total construction permits have fallen by more than 50% from the level seen in 2023, though residential construction remains firmly in expansion. Texas boasts two (2) of the top three (3) residential construction markets in the country in Houston and Dallas with approximately 45,000 total units in construction in 2024, though completions are anticipated to have peaked in Q2 of the year at roughly 25,000. Current forecasts indicate that the residential sector will comprise a significant portion of the total construction in the area for the foreseeable future, with the sector set to outpace vertical nonresidential construction in both 2024 and 2025. This fact that has been at least partially borne out in 2024, as nonresidential has declined 10% in the face of continued increases in the residential sector. Institutional buildings, especially healthcare, have continued to see growth in tandem with the residential sector and have almost doubled between 2020 and the end of 2024. Total healthcare construction for the area has topped $1bil. in 2024 for the first time, and with approximately $10bil. in actively planned future capital expenditure projects there is little reason to expect this sector to decline in the near future. These projects include the Children's Health/UT Southwestern Pediatric campus and the Texas Research Quarter project in Plano, which comprise approximately $9bil. on their own, in addition to other, smaller projects across the Southwestern Medical district. Warehousing and other institutional logistics projects like data center expansions are also commonplace, and the expansion of the Southern Dallas Inland Port is anticipated to continue to attract new private investment in this subsector. All in, construction in the Dallas market is anticipated to have declined slightly over the course of 2024 from the year previous, but is still more than 20% in excess of levels seen prior to COVID.

Total construction labor in the Dallas area has continued to increase over the last 12 months and has set a new high of approximately 258,500 full-time employees as of October 2024, an increase of approximately 3% YOY.

This marks the third consecutive year of new highs for sector employment (and would comprise a much longer trend were it not for the intervention of COVID), and with unemployment at 3.9%, 60 basis points above the low set in December of 2023, area labor sources are struggling to identify new recruiting opportunities to satisfy anticipated future increases in total volume. Specialty contractor absorption has mirrored the rise in overall construction employment almost exactly and currently sits at 145,000, an increase of 3.6% YOY, but it should be noted that though increases in total employment in the sector over the last four (4) years have been notable, they still have not been enough to keep pace with volume. From a percentage standpoint, total volume over the period has risen by 25% while total employment has risen by 10%; this provides a fairly stark comparison in terms of the markets’ ability to stay in step with demand. With volume anticipated to continue to increase at a rate above the historical average the likelihood of an exacerbated asymmetry between demand and supply becomes ever more probable.

Casper/Cheyenne, WY

The Wyoming construction market in 2024 has surpassed expectations set at the end of 2023 by almost 15%, with total volume sitting at roughly $510mil. for the year. Though this is equivalent to the total level observed in 2023 it also represents an increase of just over 100% from four (4) years earlier, and the area is continuing to grapple with the realities of supporting the demand for labor. Increases have been broad based and run across every subsector save infrastructure, with the most pronounced rises in residential and institutional buildings categories. Institutional building project volume more than doubled from the year prior, increasing from $53mil. to $108mil. over the period. Though the bulk of this spending is concentrated in education construction healthcare spending has also doubled over the period to a total of $13mil. from $6mil. in 2023, and is anticipated to stay at or around this elevated level through 2025. Residential construction has also exceeded expectations at $155mil., an increase of 27% YOY from 2023, based largely on reduced interest rates and increased delivery of inventory. Despite previous expectations utility spending has served as a balancer for total volume for the state with a decline of -13% over 2024, and has run counter to the activity seen across the rest of the country over the period.

This reduction in volume has been a key component of the area’s ability to maintain a modest level of parity between demand and supply for construction services as labor force participation in the area continues to decline. Total employment in the construction sector is currently sitting at 22,800, an increase of 300 full time jobs from this time the year before and 9% below the post Great Recession high set in Q3 of 2014, while unemployment during the summer peak came in at 2.9%, which is the lowest level observed since the same period. With the $4bil. TerraPower Natrium plant project underway approximately 6,000 positions have been created that did not exist at this time last year, and with construction set to continue until 2030 future projects with large amounts of electrical, HVAC and plumbing components are likely to face significant shortages in labor supply that will need to be actively mitigated in order to achieve expected value for money.

Completed Location Modifier Forms

LOCAL MULTIPLIER FORM

LOCATION SURVEYED Kayenta, AZ

SURVEYED BY Other

ZIP CODE (Area Surveyed) 86033

DATE

ADDRESS 1455 NW Leary Way Suite 400 CITY Seattle STATE WA ZIP CODE 98107

Kayenta, AZ

SURVES

SOURCES

Home Depot (928) 526-1692, Page Steel (928) 645-3166, Brimall/Cemex (928) 537-5716, D-Mac

(770) 664-7120

MATERIAL

Please check one or state size when a choice is given. Substitute alternate size or weight if not available, and note change.

Concrete, 3000 p.s.i., 314• aggregate ready-mix, in full loads, 40 cubic yards . ..

Note Hot water charge is excluded from cost above

Concrete block, 8" x 8" x 16", � regular, D lightweight, 3,000 quantity .

. . (per CU. yd.)

(per CU. yd.)

(per hundred) Brick, 8" x 2¼" x 3¾", Ix) common clay (not face),□ concrete, 5,000 quantity (per thousand) Drywall,½" gypsum board, fifty 4' x 8' sheets . . . . . . . . (per 1,000 sq fl.)

Structural steel, 8", 31-lb., wide flange, unfabricated, 40' length, 25 tons ......... (per 100 lb.)

*Galvanized steel decking or roofing, 24 gauge corrugated, 30 squares .......... (per 100 sq. fl.)

*Agricultural steel sheathing, 29-ga. standard galvanized, 30 squares ................ (per 100 sq. ft.)

Roofing paper, 15-lb. D 3- square, (ii 4-square, 50 rolls ............................... (per roll) Reinforcing bars,½" or #4 bar deformed, new, grade 40, 5 tons ...................... (per 100 lb,) Galvanized pipe, 1" threaded, with coupler, standard lengths, 50 pieces, 21' ea. (per 100 fl.)

Copper wire, Romex 12-gauge, two conductors with ground, 3,000 feet . . . . . . . . ...... (per 1,000 ft.)

Plywood,½" CDX sheathing, D 3-ply, � 4-ply, fifty 4' x 8' sheets .............. (per 1,000 sq. fl.)

Lumber, 2" x 4" studs, local construction grade,

□ precut, 92-5/8", gJ full 8', 6,000 board ft. or 9,000 linear ft. . ............. (per 1,000 board fl.)

Note: list one or both and state gauge if different

LOCAL SALES TAX

LABOR, INCLUDING ALL FRINGE BENEFITS - per hour

COST

$332.00

$9.00

$336.00

$2,590.00

$740.00

$94.78

$561.67

$275.00

$132.98

$208.00

$455.00

$630.00

$990.00

$780.00

6.4%

The labor rate should be the amount the laborers receive, not the amount at which they are billed out.

Electricians $43•26 Structural Iron Workers $So.91

Bricklayers ______________ S4_ 2_.2_6 Plumbers __________________ $6_

Carpenters s40.s2 Common Building Laborers ____________ s 2_ o_.o_o

REMARKS: Anything pertinent to local construction costs and use of nonunion labor:

-Inc.

nlu Highlight nlu Highlight

LOCATION SURVEYED Keams Canyon, AZ

SURVEYED BY Other

ZIP CODE (Area Surveyed) 86034

DATE

ADDRESS 1455 NW Leary Way Suite 400 CITY Seattle STATE WA ZIP CODE 98107

Keams Canyon, AZ

SURVES

SOURCES

Home Depot (505) 726-2362, Page Steel (928) 645-3166, Brim/Cemex (928)537-5716, D-Mac: (770) 664-7120

MATERIAL

Please check one or state size when a choice is given. Substitute alternate size or weight if not available, and note change.

Concrete, 3000 p.s.i., 314• aggregate ready-mix, in full loads, 40 cubic yards . ..

Note Hot water charge is excluded from cost above

Concrete block, 8" x 8" x 16", � regular, D lightweight, 3,000 quantity .

. . (per CU. yd.)

(per CU. yd.)

(per hundred) Brick, 8" x 2¼" x 3¾", Ix) common clay (not face),□ concrete, 5,000 quantity (per thousand) Drywall,½" gypsum board, fifty 4' x 8' sheets . . . . . . . . (per 1,000 sq fl.)

Structural steel, 8", 31-lb., wide flange, unfabricated, 40' length, 25 tons ......... (per 100 lb.)

*Galvanized steel decking or roofing, 24 gauge corrugated, 30 squares .......... (per 100 sq. fl.)

*Agricultural steel sheathing, 29-ga. standard galvanized, 30 squares ................ (per 100 sq. ft.)

Roofing paper, 15-lb. D 3- square, (ii 4-square, 50 rolls ............................... (per roll) Reinforcing bars,½" or #4 bar deformed, new, grade 40, 5 tons ...................... (per 100 lb.)

Galvanized pipe, 1" threaded, with coupler, standard lengths, 50 pieces, 21' ea. (per 100 fl.)

Copper wire, Romex 12-gauge, two conductors with ground, 3,000 feet . . . . . . . . ...... (per 1,000 ft.)

Plywood,½" CDX sheathing, D 3-ply, � 4-ply, fifty 4' x 8' sheets .............. (per 1,000 sq. fl.)

Lumber, 2" x 4" studs, local construction grade,

□ precut, 92-5/8", gJ full 8', 6,000 board ft. or 9,000 linear ft. . ............. (per 1,000 board fl.)

Note: list one or both and state gauge if different

LOCAL SALES TAX

LABOR, INCLUDING ALL FRINGE BENEFITS - per hour

COST

$291.00 $9.00

$348.00

$2,500.00

$620.00

$95.26

$…