Entitlement, Construction Now Taking Five Months Longer

Industrial construction is forecast to have hit record levels in Q2 2022 however the supply chain, labor and inflationary cost increases have left companies under-equipped to meet demand, according to a new report from Newmark.

As a result, longer construction timelines are in place for the projects expected to exceed 600 million square feet nationwide in total.

The entitlement and construction process for new industrial projects across the country are now taking five months longer on average than in 2019. 

Not helping matters on the apartment side are data from National Association of Home Builders and National Multifamily Housing Council that found regulation imposed by all levels of government accounts for an average of 40.6 percent of multifamily development costs.

So Many Unknowns

Every stage of the construction timeline has been hampered by two years of challenges that are unlikely to subside during the balance of 2022, Newmark’s report shared.

Anecdotally related to supply chain congestion, Newmark reported that lead times for roofing materials, for example, are still 30 to 50 weeks out on average.

GlobeSt.com recently reported that one construction and development materials and goods distributor said, “Distributors, manufacturers and apartment operators are simply holding their breath right now. There’s too much uncertainty with the economy, world events such as Ukraine and then some; and what happens if China suddenly shuts down and for how long. You might say things could get better with results from the 2024 US Presidential election, but even that’s too far and too much of a wild card.”

Newmark reported that construction costs are up 22% year-over-year as of May, according to Associated Builders and Contractors research.

Softening Housing Demand Could Drop Costs

GlobeSt.com this week reported information from NAHB and others that prices for items such as lumber, drywall, steel and plastics have mostly been on a teeter-totter, with higher prices applying the most weight. However, there is an expectation that a decline in housing demand could lead prices lower.

Labor shortages and NIMBYism are also affecting construction progress on existing development and proposed plans.

Newmark’s report added, “Deliveries will substantially increase into 2023 and are projected to exceed demand, offering tenants some respite after nearly two years of extreme space scarcity” and that “construction starts increased 64% between 2019 and 2021 to meet a whopping 120% jump in tenant demand, yet deliveries have only increased 5.7% during the same period.”