THE BIG FIVE: My Major Post-Pandemic Issues

by John Salustri

In this new monthly series, IAMC explores the critical issues members are facing. The question this month is: What Are Your Biggest Challenges Coming Out of the Pandemic? Melbourne-based Gabrielle Woolley, Global Real Estate Director for Cummins Inc., breaks the issues down for us. Of course, there are no standalone answers, and Woolley indicates the interconnectedness of each of the issues. 

First up is an issue all members are dealing with: 

1) Material costs are at an all-time high. “There was a lot of pent-up demand coming out of the pandemic,” Woolley states, “and it had an effect on material costs and commodity prices.” In rough terms, she puts the cost of steel at 100 to 200 percent over pre-pandemic levels and  lumber at “an all-time high” of 300 percent. The impact, obviously, is on the cost of asset construction and rental rates. 

2) Project delays due to supply issues. The demand for construction materials being what it is, there is an obvious cause-and-effect in construction delays. While the extent of delays varies by market, Woolley puts the potential delay at “up to six months.” 

3) Competition for quality. The nature of the market today is increased sophistication, such as the growing importance of automation in the manufacturing and warehousing process. “There aren’t a lot of buildings in the market that can meet those expectations,” says Woolley, and needless to say, the competition for the assets that can check all of those boxes is intense. The result is the need to weigh speed to market against the above-mentioned high construction costs.

4) Owners seem to be more risk-averse. The competition for quality is a recipe for a landlord’s market. “A  lot of owners are becoming very aggressive and pushing back on terms they would ordinarily have agreed to,” says Woolley. Which means that tenants will either need to take on more of the risk or assess alternative options rather than enter into a lease with an unfavorable landlord.

5) Supply chain issues cause an overflow of stock and need for short term space. Delays in the supply chain obviously hamper production, causing a need for short-term flex space across the market while the industry waits for the pent-up demand to dissipate. Once again, the competition between tenants is hot right now. And, in this landlord’s market, “There have been across-the-board increases in rental rates.” This really highlights the value of partnerships with landlords that support growth and contraction to meet business needs.

It is important to note here that Woolley is essentially an optimist.  While she believes it might take as long as 12 months for the supply chain to correct itself, she ultimately expresses her faith in the long-term outlook for the industrial market.