How to Mitigate and Manage the Impact of Increased Construction Costs


For many retailers and logistics businesses searching for industrial space across Southern Ontario, the process may be frustrating. Availabilities are at all-time lows, while rents and values are increasing quickly and often. Lead times for new developments are stretching while landlords are pre-leasing oncoming inventory 18 to 24 months in advance, if not sooner.


All of these factors are overlaid onto an economic landscape that is chock full of uncertainty, with the cost of materials and labour ticking up each and every month. Trying to account for all of these variables makes securing space incredibly difficult and is draining both intellectually and emotionally.


That said, for those businesses serious about pre-leasing or working with a developer to construct a new facility within the next 18 to 24 months, there are strategies that you can employ to help mitigate and manage the impact of increasing construction costs and elevating uncertainty.


In our last issue, we explored the impact of rising material costs and their scarcity on the availability of logistics and warehousing real estate. This week, we will examine a few strategies that retailers and logistics businesses can use to help mitigate and manage these factors.



Construction Cost Mitigation and Management Strategies


While there is no one-size-fits-all solution to dealing with such complicated processes as industrial development and construction, there are a number of strategies to consider. When executed properly, each can add up to significant cost savings and can add a layer of predictability to help reduce lengthened timelines and deal with unexpected delays.




Planning Ahead


The obvious answer to dealing with uncertainty is planning ahead. In the context of logistics real estate, this means completing all of your internal needs forecasts and getting sign-off from key stakeholders to both begin the search process and be able to quickly execute should the right option become available. In today’s environment, waiting even a couple of weeks to rubber-stamp a potential site can be the difference between winning or losing your lease, acquisition, or development.


Securing the Best Possible Pricing


In discussions with our construction and project management advisors, we understand that it is possible to negotiate with the trades and general contractors to minimize construction costs. While it is largely dependent on factors such as location, development charges, availability of materials, lead times, building size, building design, and labour, a professional construction manager can help shave off costs in every facet of the process; leading to noticeable total cost savings. Overall, having this discussion upfront will allow you to run a competitive process that may result in the lowest possible pricing, as well as even locked-in rates; a huge win, given the inflationary landscape we find ourselves currently in.


Considering Different Designs and Layouts


Similar to the process of securing tenders for materials is the decision regarding your final design and layout. With a creative and experienced team at your side, you can modify your plans to account for delays or price hikes, effectively allowing you to insulate yourself from these factors. They say that necessity is the mother of all inventions, and it can be said that the past two years have been disruptive enough to force innovation in construction methods, planning, and execution.


Starting as Early As Possible


Finally, and related to our first point, you will want to get started on the construction process as soon as possible. Often, developers begin site work and preparation while finalizing the site plan approval process and securing tender bids from the trades. What this means is you can get ahead of any delays or price hikes relating to labour or materials while taking advantage of the time needed to get everything else in order.


Summary


Overall, the GTA industrial logistics market is red-hot, with all-time-low availabilities and supply challenges. This environment will see businesses looking to fulfill their growth plans by planning well in advance and considering various strategies, from pre-leasing new construction to finding opportunities off the market.


However, with space becoming increasingly difficult to secure in a timely manner, businesses with logistics and warehousing operations should also consider build-to-suit developments or joint-venture projects with reputable developers. While this option may take anywhere from 18 to 24 months to complete, it will ensure you have the right facility for your needs.


Many of our clients are approaching us looking to pre-lease or develop, and our team has access to specialists who can help guide and manage the process from inception through move-in.


On that note, if you would like our team to assist with any of your real estate needs, or if you would like to discuss anything mentioned in this article, please contact us directly.


Logistics and E-Commerce best practices, local expertise, and market intelligence across North America


Lee & Associates Logistics and E-Commerce - Our logistics and e-commerce real estate specialists are at the leading edge of this transformation and they understand your unique challenges with integration along with revised facility and property site requirements.

We will help you find the right location that optimizes your industry needs, market positioning, revenue growth, stability, and profitability for decades to come. We focus on reducing your company’s operating costs and carbon footprint.

Whether it's assisting retailers to optimize their real estate backend warehousing and distribution needs; helping logistics managers with bricks and mortar options at the front end (manufacturing) of the supply chain delivery, or finding that location needed to support your last mile or e-fulfillment strategy. We can help, let’s connect.


We Offer Solutions:


•Transaction Management

•Project Management

•Lease Administration

•Value and Tax Advisory

•Portfolio Optimization

•Market Research

•Investment Sale Leaseback

•Accounting Compliance IFRS & FASB



Luis Almeida, SIOR*

Executive Vice President, Partner

lalmeide@lee-associates.com

D 416.628.8151




*Sales Representative


Mark Cascagnette, SIOR*

President, Managing Partner

markcas@lee-associates.com

D 416.628.8146

*Sales Representative

For More Information, please visit us at www.LeeToronto.com




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