You can but it's not a good idea for a few reasons, one of which your builder mentioned.

Construction is a series of tradeoffs though, if you live in a temperate or hot climate, I would worry less than if you lived in say Minnesota.

Are you completely gutting your bathroom? My GC said that the way to get around that issue when you gut the bathroom is to build the shower a few inches away from the exterior wall and then place additional insulation between the new gap made....

Yes, we are gutting the bathroom. Is putting a niche on the showerhead wall a good alternative? That wall is about 36 inches wide, with a handheld shower on a sliding bar.

I also will (eventually) be remodeling a bathroom with a shower where the only non-exterior wall is by the shower head. I've considered putting two identical symmetrical niches down either side of the shower head. It seems like it would be a practical way to avoid losing insulation and also seems like it would help keep your shower items dry (or soapy) as you shower. One drawback might be having to stand in the shower stream in order to reach the items in the niche. I would also love to hear if anyone has done this and been pleased with the result. Thanks for posting the question.

While not ideal, I did put my shower niches in the exterior wall, as the closest interior wall hosts my showerhead, diverter, thermostatic mixer and handheld-shower wall outlet (i.e., too much going on on that wall) and the second interior wall is at the other end of my shower 68" away. I considered getting a preformed Noble shower niche made from polystyrene to at least keep some insulation value in the wall, but I think the R value of a Noble niche is all of 2 or 3, so it was not enough of an incentive given that none of Noble's design-size combos appealed to me.

Back in January I had Massave perform a free energy audit of my remodeled home. I specifically asked the tech his opinion about my placement of the shower niche in the exterior wall and he dismissed my concerns over the loss of insulation there, stating that it was minimal in the scheme of things (whether he meant relative to the bathroom or to the whole house, I don't know).

My master bath is still unfinished so I have yet to use the shower. While the niche itself was definitely cold during these past winter months (I'm in MA), the rest of my bathroom was fairly warm -- even without the kickspace heater in place yet (but receiving spillover heat from the adjacent, heated closet) -- so I'm okay with my trade-off.

I'll usually discourage the GC from putting a niche in an exterior wall. Especially up here in Maine, the very last thing you want to do is cause a cold spot in the shower, not to mention a general loss of heat. There have been some, however, who've decided they wanted it anyway.

We wanted to put recessed medicine cabinets on an exterior wall-so same issue with insulation. Our GC build up the wall a bit so we can have the cabinets recessed with insulation behind them.

I agree that it depends on your location. I put two on an exterior wall but I live in TN and winters here are generally mild so that small amount of insulation missing is not a problem.

Thanks everyone for your input. Since it can get cold in the winter in MD, although not as cold as Maine I'm sure, I won't do an exterior niche but will see if we can put one on the showerhead wall.

Alternative idea?

You can put rigid foam insulation between the back of the niche and the wall sheathing, polyiso is R7 per inch. Then you could bring the face of the niche into the shower a couple of inches to compensate for the loss of depth.

That's for a 2x4 wall.

For a 2x6 wall you could use 2" of foam, which would still leave you with a 4" depth (3-1/2" of stud and 1/2" of cement board) for the niche. That R-14 of 2" foam would be more effective than R-19 of full-depth fiberglass.

My opinion.