As Construction Costs Rise, Companies Seeking New Office Space Deploy New Strategies to Protect Their Best Interests

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By Christopher Harak
Senior Vice President, Blanca Commercial Real Estate

As construction costs continue to rise and access to construction labor and materials continues to shrink, savvy companies ranging from professional services to technology firms seeking to build new office space are beginning to deploy a new set of strategies and tactics to protect their best interests.

During the past five years, construction costs have increased exponentially in most markets. Today’s construction boom – an ongoing reflection of lingering, post Great Recession pent-up demand – is making matters worse, putting labor and material shortages at the forefront. Consider:

  • Construction companies and their sub-contractors are booked solid, making them more selective of projects they accept.
  • Increased lead times for critical materials are making timelines longer and extending the schedule on general project conditions.
  • Salaries are skyrocketing due to the scarcity of qualified, skilled workers and the increased demand for work.

Today’s smart business owners are recognizing that finding the right office site is about more than finding a nice space in a nice location. They are spending more time upfront to identify the right team of advisors and develop the right methodology to minimize costs and maximize benefits.

Companies today are looking at a new set of criteria when selecting their commercial real estate advisors, including hiring those who can leverage contacts and relationships in complementary service areas, including construction, architecture and design, to help ensure their interests are well represented and their projects can move forward on time and within budget. They are spending more time evaluating potential advisors and ensuring they have the right networks, experience and expertise to support their specific needs.

When selected, their advisors are applying a new set of criteria that align with the companies’ brand identities, overall business objectives, financial goals and corporate cultures.

More specifically, their advisors are:

  • Investing significant time upfront to understand companies’ goals and develop the right requirements and criteria for evaluating potential properties. In today’s commercial real estate marketplace where options and amenities abound, companies are recognizing that it is beneficial to set the base criteria from the onset. This initial planning step is helping them avoid imminent pitfalls and mitigate the overall impact of rising construction costs.
  • Completing thorough cost estimates that include numerous and variable considerations, timing, finish levels, and existing conditions of premises.
  • Anticipating cost overruns and developing alternative options to minimize the impact on companies’ bottom lines.
  • Following a methodical process to engage the market with site requirements, assess properties, short-list candidates and help companies understand the financial implications as they evaluate the alternatives.
  • Leveraging their relationships with contractors and architects in securing estimates that will help companies understand the potential impacts to the overall costs of renovating or building out their spaces. In this phase of the process, they are providing valuable insight to help companies decide whether and when to scale back on expenditures.
  • Weaving into the plans realistic timelines for completion and costs associated with all designers and vendors responsible for final big-ticket items, including finishes, doors, floors, furniture, move costs and décor. They also are including alternative recommendations and considerations (i.e., new vs. refurbished, look vs. quality), items that can sometimes trickle upward during construction and require budgets to be reforecast.

Just as important, savvy companies are recognizing that they must allocate as much time as possible in advance of any planned renovations or build-outs. Gone are the days of waiting one year or less to consider a move. Without a doubt, the more time companies give themselves and their commercial real estate advisors, the better their chances of achieving their goals in today’s challenging and complex construction market. Those who do will gain a significant competitive edge.

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Christopher Harak is Senior Vice President of Blanca Commercial Real Estate, the leading independently owned commercial real estate brokerage firm in South Florida. He may be reached at Christopher.harak@blancacre.com