With commercial construction activity up by double digits in 2016 and projected to increase another 5 percent in 2017, the industry continues to keep a keen eye on labor shortages and construction costs. This rings even more true in the face of today’s increasingly stringent financing requirements — a critical project element that can push construction schedules out by months and, in the process, create challenges with accurate pro forma data, true labor schedules and pricing.
The balance between schedule shifts and a backlog of work has proven particularly challenging for the entire industry, and presumably shows no sign of relief. For optimal success, teams must diligently focus on cross-functional communication, design-build principles and early strategic planning to protect from the pitfalls of 2017’s momentum. Focusing on this early planning gives clients two of the greatest advantages available in our current building climate: a forum for unearthing issues proactively and time to plan for solutions.
In cases where design-build isn’t possible, teams can still capture the benefits of this concept by getting the right knowledge leaders at the table early on, providing significant results to project cost savings, resource management and logistics planning.
The Labor Issue
While the industry jockeys to fill the more than two million construction jobs vacated during the recession, competition for resources is a concern affecting all members of the industry. Speaking directly, there are not enough people in the pipeline to fill key roles required for continued growth in our industry. Universities and colleges continue to produce many candidates, but experienced professionals for today’s complex projects are limited. Unexpected changes in schedules due to financing, entitlements and shifting tenant confidence levels are continually creating fast-track, quick-turn scenarios demanding top-notch talent and experience. Early partnering between developer and building teams allows planning time to assess staffing needs and contract with quality subcontractors so that resources are available at construction start.
Graycor joined a collaborative design-build team early to map out a precise schedule and budget at Camelback Collective, a mixed-use office and hotel project being developed for LaPour Partners. This was a critical advantage for the infill project, which sits on 3.6 acres in the heart of Phoenix’s Camelback Corridor. Bordered by commercial, residential and a major thoroughfare, the location offers minimal wiggle room for costly logistics surprises.
All Eyes on Costs
A robust 2017 construction pipeline will also continue to put pressure on critical raw materials like steel and copper. While construction costs over the past 18 months have remained relatively steady, both labor and materials costs are tracking higher than inflation. The industry is bracing for how this might impact projects and their financial exposure.
Early involvement from a general contractor allows teams to plan for potential price escalations and preorder materials that could face potential shortages. General contractors can also assist the lending team by supplying active market data as a project enters the tenant improvement (TI) negotiation process. This is an alternative to negotiating TI allowances based on an architect’s design, often weeks or months in advance. At Orbital ATK’s new 60,000-square-foot office space in Gilbert, Graycor combined its knowledge of the project’s construction timeline with the tenant’s occupancy goals to work backwards toward a win-win outcome. This full-circle approach ensured that the heavy technology user, similar to many modern office tenants, could customize the TI project to their needs but still meet the fast-tracked, 22-week schedule.
For development teams, these best practices form a cohesive methodology for engagement so that all parties are aware of a project’s every move… the key to success in 2017.
— By Todd Ostransky, General Manager — Southwest Division, Graycor Construction Co. This article first appeared in the February 2017 issue of Western Real Estate Business magazine.