We’ve all heard about the problems with the Suez Canal and the docks in California, where everything from our new sneakers to our COVID tests are sitting. We should by now know that our building materials are on those same boats or docks. In fact, those supply chain issues are getting worse, due to the situation in the Ukraine. How does this scenario affect the commercial real estate market in Connecticut?
Balance of Building vs. Renting or Buying
The answer is pretty straightforward: It tilts the balance of building vs. renting or buying. There is a lag in every part of the construction pipeline, that are causing delays in construction of every kind. Unless your project is already underway, it isn’t likely to be starting soon. Depending upon how committed you are to building your own space, you might want to think through the equation again.
Even the very beginning of the process has lengthened. Many towns and cities still have employees working remotely, and many, if not most committees are meeting by Zoom. That means that it’s harder to get through the zoning timeline, and maybe the permitting step as well. Architects are very busy, and construction companies are as well. In addition to having a lot of work, both fields are short of work force capacity. Connecticut, in fact, is caught in a worse bind than many other states. Even if every unemployed person in the state went back to work, there would still be a shortage of employees to fill positions.
Overbidding and Lack of Demand
Now add the price of gas to the inflationary cycle of materials, and you are looking at a longer timeframe, and a bigger budget. Think about what you’ve seen happening on the housing front, with massive overbidding due to lack of inventory and more demand. That’s the same place that the commercial market is heading, especially in the industrial sector. Also, due to COVID, there are more building modifications to be made on existing or acquired spaces, so those landlords and tenants are competing with new construction for time, attention, and materials.
What’s the lesson here?
Because it takes longer for price increases to wend their way through leases, you won’t be feeling the effects of everything written above as quickly. That would point to renting as a smart alternative, at least in the short run. Since supply is definitely a factor, sooner is better. For buying, the same is true, although leases won’t necessarily come into play.
Long term, it’s good news for Connecticut, and represents our best chance for catching up to the economic growth rates of the rest of New England and the nation as a whole. It’s also good news for whatever you plan to make, sell, or offer in whatever space you take. The time to act, though, is now!