Nationally, we are experiencing total construction costs at an average of 8% higher than last year's costs. And while there has been a downturn in the residential market over the last few months, the total residential construction value is still 50% more than what it was just four years ago.
Why has the cost of building risen so dramatically?
A number of construction materials are skyrocketing in price due to high energy costs, strong global demand, and market speculation. As price and construction demand increase, pure speculation in the commodities markets is driving prices with no certainty or logic behind the fluctuations.
According to the Associated General Contractors of America, nationwide the price of gypsum products used for drywall is up 23%, plastic products like pipes are up 20%, steel mill products 18%, aluminum mill shapes 15%, and concrete 11%. In addition, this is the fourth consecutive year of strong price increases for fuel, causing the cost of running equipment and delivering materials to inflate.
As we grow globally, demand grows and prices climb. The strain on manpower and material availability will persist in driving market prices. But rising material costs are not the only factors driving up the cost of branch building. Consumer demand for a customized, dynamic financial institution is also elevating the cost of construction. Consumers want a deeper relationship with their financial institutions. In order to provide experiences that support this consumer demand, businesses have to offer a customized, retail experience.
In a BAI study, 46% of respondents believe the future of banking over the next 10 years is best described as a decade that will undergo dramatic change, increased, non-traditional competition, focusing on relations and non-traditional service offerings. And 55% of those surveyed indicated that the future branch will be more dynamic and multi-sensory, targeted at specific member segments, promoting stronger member/provider relationships.
Of this group, 89% said the industry will increase in competition and expand beyond traditional banking avenues.
The financial services industry is repositioning itself to meet the demands of society. Consumers today want customization and experiential design elements within the retail experience. We've re-invented the banking environment to meet marketplace demands, and in turn, the cost of creating these facilities has risen. These new branch environments are also driving the cost of the branch higher, in some cases $50 to $150 per square foot higher than traditional branches.
Today's branch isn't your father's Oldsmobile. A Member Experience Retail branch is more interactive and engaging than traditional branches with the addition of such elements as digital signage, dialog towers (teller pods), and point of experience centers. But creating a customized experience is not always about updating branches with the latest in technology and bells and whistles; it's about creating an experience that goes beyond the member's expectations. It's about focusing on catering to specific market segments, which may, or may not, be tech savvy.
High-end finishes and comfortable member waiting areas are also used to encourage members to linger longer in the branch. In today's financial institutions, elements such as distinctive architectural entry towers, drywall accent ceilings and soffits, specialty lighting fixtures, and inviting lounge areas are standard.
All of these enhancements contribute to creating a dynamic member experience, and provide a competitive edge. As such, they have to be thought of as an investment to grow your business. Financial institutions must be designed to attract, speak to, engage and retain specific member segments to be competitive in today's market. These new environments are driving the costs of a branch higher, but the investment in infrastructure will reward both members and the bottom line.
Bob Mannion is SVP-design & construction for NewGround. CU Journal readers can request a free copy of NewGround's White Paper Deconstructing Sticker Shock: Why the Cost of Building is on the Rise by calling 1.888.613.0001 ext. 453.