The construction industry saw disruption like never before after the pandemic hit our country hard in 2020. Labor shortages, high demand, supply chain issues, and other factors culminated to wreak havoc on project budgets and timelines. Wholesale lumber, for example, rose from nearly $400 to $1500 per thousand square feet during the first year of COVID-19. And that was just the tip of the iceberg.
In these unprecedented times, we dig deep into our long-standing expertise and what’s happening in the market, and make wise decisions from there. And because we’re in constant communication with our trusted trade partners and people who are on the front lines, we’re able to keep our fingers on the pulse of what’s actually going on.
“We can confidently give our clients sound advice on pricing and schedule forecasts due to our industry knowledge, constant communication with trade partners, and the sheer volume of work in the industrial market.” says James Belange, Partner at Compass.
Despite all of the tough supply and pricing news that has come our way of late, we are seeing a brighter future. With an eye on leading indicators and an ear to the ground, we’re optimistic. And because we know that knowledge is key and we’re all in this together, we want to share some of what we’re seeing and hearing as we round out 2022 and head into 2023.
4 Industrial Insights and Trends for 2022-2023
- We’ve seen the top of the pricing curve in 2022 in many of the trades. Steel, precast, roofing, and dock equipment prices are declining now and we fully expect them to continue going down. However, it may be the end of 2023 before we see decreases in concrete, electrical gear, asphalt, and lime. Escalation clauses in proposals and contracts are now becoming a thing of the past.
- Lead times are improving in some areas.
We’re all familiar with the lead time headaches that have plagued projects the last two years. The good news is that we’re seeing faster turnarounds these days across multiple trades, including:
- Precast: current lead-time 4 months
- Structural steel: current lead-time 4-5 months
- Roofing: current lead-time 5 months
- Despite broad improvements, some lead times are simply holding steady.
Sourcing concrete material for slabs continues to be an issue (plan on 1-2 pours/week). And many trades seem to be just holding steady with lead times including fire protection, HVAC, and electrical switchgear and materials.
- You have to really understand all aspects of making a development come to life.
It’s not sufficient to just quote 2022 numbers for clients because it’s easier or feels safer. It’s critical to have a true understanding of capital market volatility and how this impacts developers. In 2023, we understand that interest rates and cap rates are likely to be unpredictable. Therefore, rental rates and construction costs will be key in balancing the proforma equation. With all these things being said, our part of the equation is to bring back predictability in construction costs and schedules. While we’re likely not to see the same volume of projects in 2023 versus 2022, we’re optimistic that construction cost inflation will reduce, allowing industrial development in Central Indiana to remain strong.
At Compass, we take serious pride in each and every project we have the privilege of being involved with. And when we say that ‘Stewardship’ is one of our core values, we mean it. We look at projects through our clients’ eyes and work hard to become a trusted partner, a good steward of their money and a facilitator of great project outcomes.
“Recently we had a few projects facing challenges due to capital market trends. and we wanted to see if we could improve construction costs by a couple dollars per square foot. We collaborated with our main trade partners and were able to make these projects financially viable, saving literally millions of dollars without sacrificing quality,” says Belange.
In sum, we’re a hopeful crew. We’re seeing less volatility in pricing and schedules and are confident things are looking up. We’ll have a clearer picture once 2023 gets underway and will continue to keep tabs on the market. Once Q1 wraps up we’ll have more data to share. Make sure you’re following us on LinkedIn for the latest.