Office Leasing: The Impact from The Supply Chain Headlines

I wanted to talk this week about the supply chain constraints and its impact to you as an occupier and a tenant in the market who may be looking at office space. There are really two things going on. One is with regards to pricing and the other one is with regards to timing. From a timing perspective, I think tenants need to be thinking about how long it’s going to take to build out space because there are some huge constraints and pressure on the market right now that I think is going to impact you as a tenant, which just means at the end of the day, that you need to be thinking about a much longer timeline.

First of all, think about the things that go out to building an office space. If you’re thinking about building your own space, insulation is taking 20 to 40 weeks longer, flooring is taking five weeks longer than normal door and handle and hardware is taking 10 to 12 weeks longer, and glass is taking seven to eight weeks longer. All things that are going to impact you as somebody who’s trying to build out your space. What does this mean to me? It means that more than ever people want built space. Not only will it help save companies time but reduces concerns surrounding if a space is going to be ready in time to take possession. It helps avoid concerns about potential holdovers which for those people who are reading and unfamiliar is there’s a penalty for staying longer than the lease expiration. This penalty sometimes it’s one and a half times your rent. Sometimes it’s two times rent. Imagine you’re somebody moving into space and there are all these delays in, in your space being ready. That’s going to really impact you and your business and your bottom line.

The takeaway

You should be thinking longer term which means starting the process of your search and your negotiations much earlier than before you actually thought you were going to because of these constraints. And then there’s the price, right? So, if you’re thinking about building out space whatever that dollar value of the work letter you receive from the landlord is it’s not going to go as far as it had gone previously.

Why $1 is no longer a $1 in a work letter? Everything costs more. Drywall price are up 40 to 50% versus January 1, 2021 ceiling prices up 40%, cabling up 25%. All these things are going to impact your budget and the ability for you to take the work letter that you get from a landlord to build out your space. I just really want you to know about those things ahead of going into whatever your next real estate decision is going to be. I want to give a shout out to Curtis Brown over at Structure Tone for sharing the work that his team does with regards to the supply chain and pricing the impact that’s going to have on construction build out.

Please feel free to contact me if you have any questions.

Leave a Reply

Your email address will not be published. Required fields are marked *