CRE Projects Getting Tripped Up by Supply Chain Woes

Dwight D. Dunton III, founder and CEO of Bonaventure Holdings, drove up to one of his company’s construction sites in the fall. “The buildings all looked like giant checker boards: some siding here and some siding there,” he tells GlobeSt.com. The subcontractor was installing siding as the supplier could deliver it.

While the Wall Street Journal recently wrote about how supply chain issues are affecting new homes, the problem stretches across commercial real estate projects. 

A renovation of a bank space into a furniture showroom by interior design and architecture firm, Leslie Saul & Associates has seen a big delay because linear diffuser boxes weren’t available. “They finally arrived last week, but almost two months after the original due date,” Saul tells GlobeSt.com. “The store was supposed to open by Christmas, and instead it may be the end of February.”

Nareit senior economist Calvin Schnure sees two problems supply chains have imposed on CRE building. “One is the cost that might make a developer think this might be a project that isn’t doing,” he says. The other thing is lack of availability in needed quantities. “We are seeing delays and real difficulty in getting requirements at every step in the chain.” That includes raw materials, finished products, transportation, and labor. 

“Commercial real estate is impacted like the rest of the world, with logistic delays prolonging lead times on the construction front, in addition to delays on the architectural and engineering front as well,” Randy Carballo, executive vice president of Blanca Commercial Real Estate, tells GlobeSt.com. Office space needs under 10,000 square feet used to take six months. Now it’s eight to ten.

Firms try to manage. “We are ordering materials far in advance,” says Pete Tuffo, president for the south region of Suffolk Construction. “However, since the majority of projects do not have sufficient laydown area to store materials, Suffolk works with clients to rent nearby warehouse space.”

“In my area of New Jersey and Pennsylvania, there seems to be very little non-medical commercial new construction,” offers real estate attorney Bonnie Galam. “It’s largely repurposing existing commercial structures. This alleviates the need for some building materials like lumber, but commercial developers are still facing the increase in prices on items like windows and drywall.”

“Our latest building products survey showed that the supply chain remains quite stretched, with no indication that conditions are improving,” says Ivy Zelman, CEO of Zelman & Associates, with 88% of respondents seeing lead times that were “modestly or well above normal.”

The impacts lead to tensions and legal strife. “Owners-landlords and development and construction experts are trying to avoid deadline clauses, even as tenants are pushing for them,” Andy Gutman, president of full-service commercial real estate firm Farbman Group, tells GlobeSt.com. “In response, some developers are starting to insert clauses into their contracts to say they aren’t responsible for any delays or disruptions because of the current supply chain issues.”

For those who hoped that the new year would bring a quick end to the pain, there’s disappointment.

“It may be into next year to see the ability to do non-residential construction unhindered,” adds Nareit’s Schnure.