Real estate business

COVID-era supply chain problems hit the commercial real estate industry

“It’s unlike anything I’ve seen in my career,” says MacGregor, who started Accend in 2019 after nearly a dozen years with Chicago-based Skender Construction.

An equally difficult problem is delays in obtaining materials. With COVID strengthening home builders – residential construction starts in the Chicago area in the first four months of the year are up 30% from the same period in 2020 to $ 1.6 billion, According to New York-based research firm Dodge Data & Analytics – the country’s timber supply has been exhausted. Now, suppliers of wood doors who would normally get them into the hands of buyers in a matter of weeks allow more than three months for delivery, some contractors say. The bar beams that support the floor structures have gone from 12 weeks on order to over nine months. Some suppliers allow six months to obtain insulation products.

The shock is starting to reverberate in the office world, where tenants looking to renovate the workspace of their soon-to-be-returning employees find it can take two or three times longer than expected to complete parts of the job. work, and it could cost a lot more.

Colliers leasing broker Michael Lirtzman said some tenants hoping to make major changes to their space have scaled back their plans due to pricing uncertainty.

“Some said we were going to stay put and kill construction for now or significantly limit the scope. Two or three years ago it was the opposite, when every tenant wanted to push the boundaries,” says Lirtzman.

A downtown landlord who refuses to be identified had prepared two months ago to fund a major upgrade to a tenant’s office space in exchange for a lease renewal, but the company returned this month by asking them to cover a 30-40% higher construction budget. Dear. “It puts the deal at risk,” said a spokesperson for the owner.

Some of the rising costs have been mitigated by contractors desperate to occupy their workers and bid so low on jobs that they virtually wipe out their profits on some projects. But that should go away as the pandemic subsides and development resumes.

“Rising materials prices are expected to continue through the end of this year and are the most significant downside risk facing the industry,” Dodge chief economist Richard Branch said in a statement. .

Price volatility is especially tricky for companies that want to renovate or redesign their workspace for a post-COVID world but are waiting to see how employees want to use their space before making long-term decisions, says Mike Yazbec, president. from Chicago. JC Anderson, specialist in the construction of office interiors. As companies try to budget for the cost of this work in 90 days, contractors cannot make reliable predictions.

“We have big, bold letters on each proposal that say we can only hold this price for 15 days,” Yazbec said.

Some developers are planning to put projects on hold altogether in the hopes that things will normalize in the second half of the year, although inflation on the horizon could mean it will get worse.

Joe Pecoraro, who oversees multi-family construction work for Skender, explains that some apartment developers who have spent a year or two lining up projects are now facing the reality that they can cost up to 10% more than what they had budgeted for because of the cost of materials.

With little visibility on whether or when the price of certain materials will return to more normal levels, he advises customers to purchase certain materials in advance or to be more flexible with designs to ensure that they do not. encounter no problems.

“If you know you want your building lobby to be tiled, you can say you want that exact tile and get it now, or you can say you want a tile of that quality and whatever we get. when we get it, that’s what we use. You can’t overlap the middle in no man’s land, “he says.” If your project is delayed because you’re waiting on a tile, that’s a bad situation.”

COVID-era supply chain problems hit the commercial real estate industry

Steel, drywall, electrical conduit, etc., are all harder to find and more expensive.

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