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Construction Costs are on the Rise

Steel framing at the new Salt Pump Climbing Co in Scarborough, ME
Steel framing at the new Salt Pump Climbing Co in Scarborough, ME

by Tino Fiumara

After reading CBJ’s annual Gyms and Trends report a lot of people realized that the time to build a climbing gym is now. Actually, in 20/20 hindsight, the time was five years ago. A gym would be going gangbusters by now and the ownership group would be executing on their expansion strategy. Yet, in foresight, the time is literally now. And if you are underway with a project, you’re probably learning about price increases, schedule changes, and other, possibly unforeseen, adjustments to your budget.

Building a gym is an involved and expensive process. It’s a business whose main assets are cost-prohibitive and must be incurred up front. These assets – the climbing wall and the building (if it’s not leased) are an amalgam of steel, lumber, and concrete. These base level materials are tied to the greater national and international resource markets. Right now, prices for oil are down, so many think that materials and shipping should be cheaper, thus making now the right time to build a new facility. Yes and no. Yes, it is absolutely the right time, but for a different set of reasons.

Non-residential construction for 2015 is up – there is no question about that and there is plenty of supporting data. Turner, a North America-based, international construction services company, publishes the Turner Building Cost Index, which measures costs in the non-residential building construction market in the United States. They have reported a 1.19% increase from the First Quarter 2015 and a 4.69% increase from the Second Quarter 2014.

A Consensus Construction Forecast shows that US commercial construction is on the rise, almost on par with the indoor climbing industry, about 9% per year. This Consensus is an aggregate forecast of seven well-respected forecasting organizations, including Moody’s, Wells Fargo, and Dodge Data & Analytics. In line with the growth of the indoor climbing industry, this same Consensus also put recreational facility construction on the rise to the tune of more than 14% per year.

This constant wave of commercial building has created demand for the same materials that are necessary for building climbing gyms: lumber, steel & concrete products, and skilled labor. Land is also becoming more expensive, but due to geographic disparities in land value the focus of this article is on construction precursors.

Consensus Forecast
Consensus Forecast

Almost a Level Playing Field

Prices are going up. Raw materials and shipping cost increases have had an effect on the commercial construction market but this has affected all builders. In the US, we have seen lumber, concrete and steel costs on the rise. However, the biggest pinch to future budgets is that skilled labor costs on the rise – in part because there isn’t enough skilled labor, and because the high demand for this labor has driven up wages.

For US climbing wall manufacturers, we spoke with both Rockwerx and Entre-Prises USA and found that both have seen similar increases in the prices of plywood and steel.

Ralph Rogers, CEO of Rockwerx, reports that, “just in the past 2 years, we have seen a rise in plywood prices of 12%. Steel prices have gone up 10%. Concrete has gone up 6%. As far as labor goes, yes, labor costs are on the rise. I am a firm believer in ‘you get what you pay for’ and skilled, hard-working American workers cost money.”

“We are seeing construction costs rise very quickly,” explains Jason Stollenwerk, VP Sales & Marketing for Entre-Prises USA. “As much as 5% compared to 2014. There are many factors that play into this, including increased labor costs to increases in raw materials, shortage of skilled labor, and shipping costs”

These two firms foresee continuing cost increases in the next two years of approximately 2%-4% per year. This is in line with the Construction Cost Index and Building Cost Index, published by the Engineering News Record (ENR), which reports a 2.4% increase in building costs and a 2.9% increase in labor costs from June 2014 to July 2015

Building costs are always relative to your product and where the materials come from. Walltopia’s main product is the panelized wall system that is mostly plywood and steel, whereas EP and Rockwerx also have products that utilize concrete (to which ENR reports an 8.4% cost increase on concrete over the last year). Most American companies source their materials and their labor here in the US, where materials and labor are generally more expensive than Europe or Asia. Walltopia is unique in that it sources its materials and labor from Eastern Europe.

Adam Koberna, the US Sales Manager for Walltopia adds that, “Most of the cost increases that (Walltopia) has seen, in the market, are driven by materials. Steel prices are always changing – this is what I’ve seen in 20 years of doing this. China was building for the Olympics 10 years ago and used all of the steel in the world and drove prices up for 2 years. It has since calmed down.”

ENR Commodity Prices for 2014/2015
ENR Commodity Prices for 2014/2015

The Steel Vacuum

Steel prices really can be all over the place, yet there has been artificial lowering of steel prices thanks to the reduced oil prices mentioned earlier. Less steel is needed since oil production contracted, thus flooding the market with this extra capacity. The Wall Street Journal reported that Chinese, Russian, and Indian steel were dumped in the US market earlier this year and domestic producers had to drop their prices. This was so impactful that both the US and Europe have begun anti-dumping investigations into China and Russia for their below market pricing and excessive exporting. This may have had a positive effect on current climbing gym building projects, or, more likely, builders may have used that profit margin to cover any reduced margins from other increased costs. No matter the result, this steel price reduction is probably short lived.

Like China’s steel consumption from 2006 to 2008, China is getting ready for the 2020 Olympics and will soon be buying up steel for arenas and public infrastructure projects. On top of that, only one of the 13 new stadiums needed for the 2018 FIFA tournament in Russia have been completed. Almost $100 billion in enhancements have been planned in preparation for the soccer tournament. Basically, you can almost hear the steel vacuum that is going to happen across the globe.

Time is Money

Gym owners want to get projects off the ground sooner than later. We are in the golden period of climbing gym development as there are many underserved markets and the public appeal toward the sport has never been so high. This momentum combined with the likelihood of increasing production costs points toward the necessity to take action now if building a climbing gym is even a remote goal. So, this may be obvious, but having a great business model is essential so that potential start-ups have a real handle on the costs, the timeline and exactly how the gym’s revenue lines will work. The start-up phase is critical and small deviations can result in large costs. If the permitting for a project doesn’t go as planned, then it’s at least a couple weeks delay as plans are changed…cha-ching. If there is a weather delay or the builders inevitably fall behind schedule…cha-ching. This cash register sound isn’t just another cost incurred now, it’s the cost of not opening when planned and thus not meeting Year 1 revenue targets.

It is always recommended to have contingency plans for each of the possible issues that can arise in the construction phase. Budget extra time for permitting issues, especially if you are in an urban center with lots of red tape. Consider adding a 10% buffer to your loan value for unforeseen changes that can result in increased costs or that could otherwise force you to scale back some element of your project just to stay on budget. A potential gym ownership group doesn’t want to have to excise some climbing space if their township requires them to have a more ornate facade.

“It’s easier to go big in the beginning than to go back and ask for more money,” says Ralph Rogers of Rockwerx, “and (it helps) to get the building architect and the climbing wall structural engineer together as early as possible.”

EP Wall under construction at Movement Denver
EP Wall under construction at Movement Denver

The Million Dollar Question

What is the price per square foot to build a climbing wall? No one wants to answer it and to help you out, we are going to answer a question with a question. How much does it cost to make dinner? It depends on what you want to serve. Exactly.

In CBJ’s Climbing Wall FAQ section, you can see that it takes between $25-$38 per square foot to build a wall. Elevate Climbing Walls states on their website, “depending on the complexity of the design and structural issues with the building, climbing walls can cost between $30.00 and $40.00 per square ft”. There are a lot of specific, nuanced decisions that go into the cost of a custom climbing wall structure that make many facilities incomparable.

For their Modular Panel Walls, and not their premium ARC Walls, Vertical Solutions advertises a $35 per square foot cost. These prices are before change orders and they don’t take into account if you’re building in midtown Manhattan or in Missouri.

Then there is market pricing to take into account. Just because a wall builder normally gets $35-$40 per square foot for much of it’s product, it doesn’t mean they won’t take $10 less per square foot just to lock-in the contract. Crazier things have been done to win bidding wars. As the old adage goes, “you need to give a little, to get a little.”

However, if there is a bid that is coming in way under all of the others, be wary. Ask around to your poll-group of gym owners and at least a couple will have a story about how they were lured in by a low price and made up the difference by either fixing poor work or by change orders to get what they really needed. What you do want out of your relationship with your wall builder and your general contractor is trust. Potential owners want a fully-itemized contract. Adam Koberna of Walltopia states, “when we get done with the computer model you will know exactly (what the costs are). This is huge – the transparency on construction costs per square foot.”

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