Here's What Builders Can Do As Commodities Remain Volatile

Builders and developers should engage project managers and prepare for alternative building solutions as volatile commodities prices continue to wreak havoc on virtually every CRE property type, according to a new report from Cushman & Wakefield. 

While risk management strategies may differ somewhat across the property spectrum, occupiers and investors should engage project management professionals early to solicit specific advice based on market conditions and industry expertise relating to budgeting, scheduling, procurement strategies, suppliers, and design scope.  Cushman & Wakefield also recommends engaging a project team that can create and vet “all possible project solutions,” including creation of customized master project budgets, master schedules, and value engineering studies.

C&W also recommends that owners consider alternatives to more traditional in-demand building materials, like precast concrete panels, PEX plumbing, lumber, CMU, concrete, or steel.  Specifically, the firm says owners of office high-rises should consider concrete structures in lieu of steel, while low-rise and mid-rise construction may benefit from modular construction, which reduces waste and drives up labor efficiency.

Industrial owners would be wise to maximize tilt-up and precast construction to reduce reliance on structural steel, and to consider prefab whenever possible. C&W also advises designing projects to maximize bay width to minimize steel joist infrastructure, and where steel joists are needed, to start procurement ASAP.

On the retail front, C&W says to “embrace prefabrication wherever possible,” and to  modularize key building elements—up to the entire structure, if possible to minimize raw material transportation costs. And modular construction is also advised for low- and mid-rise multifamily projects, where prefabrication should be “fully embraced” for key building materials. The firm also recommends multifamily developers consider alternatives to copper piping, where permitted, and to consider concrete structures instead of steel.

For all property types, Cushman & Wakefield experts recommend beginning the procurement process for interior materials as soon as possible to mitigate supply chain delays.

“The faster rents are growing now, the greater the margin of safety developers have to absorb the cost of higher materials prices and supply chain uncertainty,” the report notes. “From the occupier developer/build-to-suit perspective, the question is how confident one can be that functional space can be secured in the right locations in order to meet projected needs. The greater level of product specificity will tend to mean greater ability to absorb development cost increases because existing assets are less substitutable.”

Cushman experts note that while supply-demand imbalances will probably keep cost growth rates high, supply chain modernizations and improvements should temper those increases.