Delays in entitlements and construction processes are adding an average of five months to new industrial builds.
Data from Newmark shows projects in the pipeline are hitting major backlogs. Starts are up 64% between 2019 and 2021. Tenant demand is up 120%. Deliveries are only up 5.7%.
Newmark’s report shows challenges from entitlements to supply to labor are impacting construction at every point in the development process. Lead times for materials are uncertain and can reach out to a year (or more) in some cases. Municipalities are short-staffed while simultaneously seeing a higher number of projects coming in. The construction labor shortage that was taking a toll even before the pandemic has only gotten worse in that last two years.
Residents near industrial areas have grown tired of seeing new project after new project in the works, and opposition is growing, adding to the entitlement delay.
All these factors, combined with a 22% rise in general construction costs year over year as of May, a slight downturn in demand and increasing capital costs are sidelining some projects altogether.
Newmark’s report predicts users who want to build and occupy their own project may see opportunity in the coming year as more development sites get put up for sale. It also anticipated an uptick in deliveries into next year that may exceed demand.
One outstanding risk is the slowdown in demand intensity might lead some developers to pull back their development pace, which could ripple into renewed supply shortages in the mid-term. (Source)
