Shopping for new space is not just accommodating growth, but sustaining future momentum in a location that successfully meets all of the business’s industrial or office space needs. In an upturn economy, business owners may be tempted to build their ideal property, especially with increasing rents acting as a leasing deterrent. However, business owners should be aware that the construction industry has not regained all of its pre-recession strength. Fundamentals confirm that we’re teetering on the brink of another development cycle, but we’re not there yet.
Though office and industrial sectors have begun to rebound with promise, economists stress that construction was one of the hardest hit industries during the Great Recession, so its comeback will naturally lag behind business growth. The unemployment rate for construction workers is still considered high, averaging 10 percent over the past 12 months, despite being down from a peak of more than 20 percent in 2010. Even with positive reports showing that U.S construction spending, home building and government construction have lifted total industry activity to its highest level in over five years, commercial construction remains flat. Although this is welcoming data overall, present conditions cannot fully restore the needed confidence for speculative project construction.
While the construction industry continues to recover, today’s high construction costs are a good predictor of the coming development cycle because it reflects the trend in market depth and demand. Clark County offers excellent opportunities to build to an owner’s specifications, but the cost of construction is oftentimes a shock. The discounted prices offered by contractors during the last six years have all but ceased in the current upswing. Over the past six to nine months, the surplus of available properties that were once vacant during the Great Recession have either sold or assumed a contract. Post-recession projects now show a sharp increase in material costs, but they also promote competition on higher rental rates.
What does this mean for local business owners? It means that business owners should be ready to take advantage of the tightening market and become proactive in their future space needs, especially if new construction is not a foreseeable option. Over the next 18 months, the market is projected to trend into another development cycle, so businesses with at least 12 months of lease remaining should become serious about figuring out the next steps. With low interest rates and low inventory, lenders are hungry to provide owner-occupant loans to build wealth through real estate ownership. But it’s also good to note that low inventory is further limited by quality, which can often lead to frustrating and disappointing options. Business owners should recognize that delaying any action on their future space needs is to their own detriment – current low inventory means fewer available choices; waiting for new projects will only spike rent competition; and construction costs will continue to rise. With heated demand for industrial and office space, local business owners cannot afford to waste such advantageous market conditions to purchase available property.
Garret Harper and Doug Bartocci specialize in the leasing and sales of industrial properties throughout the Vancouver metropolitan area at NAI Norris, Beggs & Simpson, a real estate brokerage and asset/property management company. Contact Harper at 503-273-0359 or gharper@nai-nbs.com. Bartocci can be reached at 360-852-9621 or dbartocci@nai-nbs.com.
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