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Industrial Construction Costs Ease Slightly but Remain Elevated

2/03/23

This report was provided by real estate services firm Cushman & Wakefield

Cushman & Wakefield has launched its North American Industrial Costs Guide, showing that pandemic-related supply chain constraints, which helped drive commodities costs up, continue to have a lingering impact on overall costs and material lead times for construction of new industrial buildings. A significantly higher interest rate environment in the United States and Canada has also provided additional upward pressure to costs.

“Construction activity in the industrial sector has raced to keep up with robust demand of the last two years in North American markets. While industrial construction pipelines continue at historically high levels, the sector is facing several headwinds,” said Brian Ungles, President, Project & Development Services at Cushman & Wakefield. “The demand for industrial space – largely fueled by the e-commerce sector, has led to historic levels of construction, and competition for materials and labor. This along with widespread inflation, has driven construction costs higher.”

Surveyed by Cushman & Wakefield, construction contractors expect increased challenges in project execution timelines and material lead times. The vast majority (85%) expect slight (66%) to significant (19%) increases in material lead times. This is marginally more optimistic than sentiment from a year ago when 88% of GCs expected material lead times to increase slightly (36%) to significantly (52%). While the industry may see material lead times easing, significant issues remain with electrical gear and regionally with core materials, such as cement and sand.

The priciest markets are located in the Western U.S. and Canada. Of the top six most expensive markets, four are located on the West Coast and two are located in Canada. The most expensive market is Portland, where costs for medium buildouts average $105 psf and large buildouts average $98 psf.

• Portland
• Calgary
• San Diego
• Seattle
• Oakland
• Montreal

The most cost-effective markets include a mix of markets in Mexico and the midwestern and southern U.S.

• Houston
• Memphis
• Mexico City
• Guadalajara
• Nashville
• Louisville

The industrial sector has been among the winners in the wake of the pandemic. Skyrocketing e-commerce demand—along with focus on improved supply chains and increased interest in manufacturing onshore—has driven North American industrial demand over the past three years. In the U.S. alone, over 1.3 bil sf was absorbed between 2020 and the end of 2022.

“New supply has not been able to keep up with industrial demand, but certainly not for lack of trying. Since the beginning of the pandemic, over 2.1 bil sf of industrial space has been delivered globally with the Americas accounting for 62% of that,” said Ungles. “Project costs and timelines continue to be impacted by record levels of industrial construction. Even as the pandemic’s negative impact on supply chains lessens, materials and labor challenges remain, making it difficult for developers, landlords and occupiers to complete industrial projects on time and on budget. Given recent demand, a significant slowdown in the construction pipeline is not likely anytime soon.”





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