Commercial Construction: Expect An Increase In Cost and Delays

The Issue: 

Building material costs have been escalating and delivery timelines are being pushed out as the supply-chain shortages and delays continue to ripple across the world. Whether you are reshaping your commercial space, completing a full build-out, or building a new commercial development, misreading the global supply chain issue can add unnecessary costs and delays to your project. 

What To Watch: 

Increased Costs 

Steel is one of the most common building materials in Commerical Real Estate. Approximately 16% of a building’s costs are related to steel. This year steel has seen a 300% increase in price and a 40-week delivery timeline. 

In addition to steel, insulation material prices are up 20%, lumber prices have seen a 400% increase, plumbing supplies saw a 175% jump in mid-April, and electrical material prices have all spiked. 

Delays   

From pandemic shutdowns to extreme weather, to labor shortages it’s taking much longer for materials to get to job sites. In 2021 we have seen the delivery timeline for steel joints increase from 14 weeks to 40 weeks, and fiberglass delivery taking up to 10 weeks. 

According to HITT’s 2021 Mid-Year Construction Materials Pricing Report, everything from roofing to plumbing is seeing an increase in lead time. They also expect these disruptions to continue in the coming months 

Why It Matters: 

Unanticipated delays and increases in project cost require more flexibility than the commercial construction industry has ever experienced before. If your construction project will be funded by a Tenant Improvement Allowance it will be important to get the project pricing upfront and define all your project costs prior to landlord negotiations in order to address any potential delays in the lease language. Once the TI has been allocated, it will be the tenant’s responsibility to cover any costs not covered by the allowance.  

For our clients that have been looking to purchase an industrial or office building, you should be aware that if there has been an increase in pricing for building materials it has already been factored into the cost.

The Hollywood of the South - Georgia’s Growing Film and Entertainment Industry

According to the state film office, Georgia currently has 2.1 million square feet of stage space and 3.2 million square feet of retrofitted stage space and warehouse space. The film and entertainment industries are booming in Georgia setting a blockbuster record of $4 Billion in direct spending on productions for the 2021 fiscal year. And the demand for production space in Georgia is only getting bigger. 

Reasons why Georgia is an attractive state for the Film and Entertainment Industry: 

• Georgia has great tax incentives

• Georgia has many diverse  locations 

• The number of sound stages 

• The abundance of talent 

Production facilities that are expanding in the Atlanta Metro Area: 

• Trilith Studios (formerly Pinewood Studios) in Fayette County

  • Trilith Studios is set to add 220,000 plus square feet of new space to its current 700-acre campus including a creative office center and 60,000 SF of “smart stages”. 

• Commonwealth Group (formerly Blackhall Studios) in DeKalb County

  • Blackhall Studios is planning a 155-acre, $250 million expansion that will deliver over a half-million square feet of new filming space with additional warehouse, office, and catering spaces 

• Gray Television (who purchased Third Rail Studios) In DeKalb County 

  • Gray Television is set to start its “Studio City” mixed-use development in the spring of 2022. Studio City will have 10 TV and movie studio spaces totaling more than 550,000 SF of production space, a state-of-the-art interactive city, apartments, townhomes, hotels, and restaurants. 

• Tyler Perry Studios in Fulton County 

  • Tyler Perry Studios is expanding its Atlanta production studio by 37.5 acres. The additional space will be open to the public including a theater district, retail stores, and restaurants 

There is no doubt that the movie production industry is driving growth in Georgia and in commercial real estate. At Wildmor Advisors, we do more than office and industrial space. We have extensive experience and expertise in an array of industries and commercial real estate spaces and are here to answer your questions and guide you through what a mixed-use development would look like. 

A Workplace For Employee Experience

Employee experience has emerged as a key strategy for employers to stay competitive with retaining and attracting top talent in the post-pandemic world. 94% of employers say they are going to prioritize enhancements to the employee experience over the next three years. This comes as no surprise as research has found that companies with an engaged workforce are 21% more profitable. And, employee disengagement costs the U.S. economy $450-$550 Billion every year. 

The employee experience begins from the very first interaction an employee has with a company, often during the interview process. According to Jacob Morgan, researcher, and author, the employee experience is based on three factors: the physical environment, technology, and culture. 

In today’s distributed workplace, business leaders are finding it difficult to keep employees engaged as company culture is tested and employee’s needs for a physical work environment shift. While the office still plays a major role in employee experience, business leaders need to re-evaluate its purpose. Knowing what your employees need and expect from their office is key in finding and designing an optimal workplace. 

What do business leaders need to know about their employees to find and design the optimal workplace? 

• The expected amenities 

Do your employees expect an on-site gym, dog-friendly campus, cafeteria, or child care center? Amenities are a large part of an employee’s workplace experience and knowing the difference between the must-haves and the nice-to-haves will help narrow down your options and keep your office search on track and employee experience top of mind. 

• Creating a supportive environment 

Employees need to feel engaged and supported in their work environment. Knowing what kind of space your employees need to feel supported is key to space design and optimization. Do your employees need quiet space, collaborative space, or frequent interaction space? In hybrid work models, for example, work might happen at home, but the physical office space needs to be designed to support collaboration and interaction. 

• Empowered Workplace 

Once employees' workplace needs and preferences are known, the physical office space design can be tailored to them. By providing employees with the resources they need to do their work well you’re creating a more empowered workplace with a better employee experience. 

At Wildmor Advisors, we believe in people-centric workplaces and are here to help you find and implement a workplace that optimizes your employee’s experience.

Why are tech companies still banking on campuses?

Earlier this month Amazon announced that it will soften its back-to-the-office stance and allow employees to work remotely two days a week. Apple, an office-centric company like Amazon, has also recognized the need for flexibility. Why are these tech giants who have built billion-dollar campuses backing off their mandatory return to the office plans? It all comes down to attracting and retaining top talent. 

Recruiting top talent for tech companies has always been competitive and now flexibility for a work-life balance is a must. This leads us to another question. If tech companies are embracing more remote work, why are they continuing to invest millions of dollars into their campuses? For example, last September (in the midst of the pandemic) Facebook purchased a $390 million campus in Washington. In addition, tech giant Oracle is moving forward with its $1.2 billion campus in Nashville. 

In an earnings call earlier this month, Ruth Porat, the chief financial officer of Google’s parent company, Alphabet, said that spending on building and upgrading offices would be “normalized” in 2021. “We believe that in-office collaboration will be just as important to Google’s future as it’s been to our past,” CEO Sundar Pichai wrote in a recent email to staff. 

So why are tech companies still banking on campuses? 

1. In-person collaboration is important

2. Top-tier talent is attracted to the perks 

Furthermore, to compete for top-tier talent companies (including large tech giants) are moving away from office-centric cultures to worker-centric cultures that focus on wellness and work-life balance. In-person collaboration space is still imperative for companies and is at the center of the “is the office dead debate”. For recruitment and retention of top talent, companies need to provide employees with flexibility, but for collaboration, companies need agile space that fosters employee impact.  

Forward-thinking companies understand the future of work is here.  At Wildmor Advisors, we know the importance of connecting companies to flexible, digital, sustainable, and most importantly worker-centric workspaces.

The Impact of the Global Supply-Chain crisis on Commercial Real Estate

Among the far-reaching impacts of the Covid-19 pandemic is a supply-chain crisis that has resulted in severe disruptions in the availability of both commodities and raw materials.  Manufacturing plants ranging from automotive, household appliances, recreational vehicles to home goods and electronics have been forced into temporary shutdowns while raw materials are delayed.  Manufacturers are resorting to air-shipments of materials, at a substantial premium in shipping costs, in order to simply keep production lines going.  A sample of the surging commodity market increases are listed below: 

• Lumber: +265%

• WTI Crude: +210%

• Gasoline: +182%

• Brent Crude +163%

• Steel +161%

• Heating Oil: +107%

• Corn: +84%

• Copper: +83%

• Soybeans: +72%

• Silver: +65%

• Sugar: +59%

• Cotton: +54%

• Platinum: +52%

• Natural Gas: +43%

• Palladium: +32%

• Wheat: +19%

• Coffee: +13%

• Gold: +3%

The Direct Impact On Commercial Real Estate 

• Building construction prices have substantially increased

  • These increases have been partially offset by lower labor costs due to the drop in demand for projects through the pandemic however, the activity is picking back up and that offset will likely disappear.  

• Developers will be much less likely to build projects on a speculative basis

  • With the strong demand for industrial space, the commodity price increases will be easier to pass along and will drive increases in rents across the board.  

• The office, where the timetable to return is still nebulous and the impact on the demand will take a couple of years to determine

  • Many projects will be tabled while the equilibrium is settling in.

• Retail properties are being repurposed or repositioned to incorporate more experiential tenants

  • The cost to build new has substantially increased and challenges the feasibility of projects across all sectors, at least until rates stabilize to support the higher construction costs

The Indirect Impact On Commercial Real Estate 

• The rapid acceleration to the shift to e-retailers

  • Amazon, Walmart, Instacart, and many others have taken large blocks of industrial space to accommodate the surge in demand for online retailing.  By some estimates, Amazon is responsible for almost half of the industrial absorption over the last year in the large metropolitan markets.

• Many manufacturers are reevaluating their inventory systems and are planning to increase their inventories to minimize supply-chain risks

  • Some of these shifts will be temporary but others may opt to be less dependent on just-in-time inventory management. Manufacturers are also redesigning the supply chains to minimize the disruption of products from any single market in order to build a more resilient supply chain. As inventory stockpiles increase, manufacturers will require more square footage in their warehouses to store the raw materials. This will result in a surge in expansion projects and manufacturers relocating to larger facilities.  

  • IIOT (Industrial Internet Of Things) has proven to have huge productivity, cost savings, and safety improvements on the industrial and manufacturing supply chain. The improvements in inventory management, product design, and quality controls are giving clear insight into how much space is needed and how to best use warehouse space.