Construction cost escalation continues

There is no relief in sight to the escalating cost of new construction. The U.S. Bureau of Labor reports new construction costs have increased 8.9% during the year ending July 2006. The graph below shows the rate of increase for the past 10 years, with July 1996 being a base of 100. As the graph shows, there has been steady and consistent increase in new construction costs starting with 2004. In fact, from July 2003 to July 2006, new construction costs have increased a total of a total of 26%.

The high cost of construction is making the economic feasibility of location-based entertainment (LBE) projects very difficult, as development costs have increased faster than admission and other fees. Another factor negatively impacting profitability of projects is energy costs. Between July 2003 and July 2006, the average cost of electricity has increased 18.7% whereas the overall Consumer Price Index has increased only 10.9%. The costs of developing and operating LBEs is fast outpacing what guests can be charged. This means that many LBE projects that might have been feasible just a few years ago are no longer feasible.