Leasing Space or Buying A Building? Plan Early.
The nation’s most recent Covid-19 induced economic recession was brief, yet impactful. In a variety of ways, it altered our daily lives; by the way we consume, communicate, and the way we work. We now have clarity on the direct impact it has had on the commercial real estate market, particularly the industrial sector. A combination of strong user demand, low building supply, construction material shortages, supply chain disruptions, and historically low interest rates has helped fuel the most dynamic industrial market in recent memory.
Planning ahead has never been more important!
Due to these factors, the importance of planning ahead has never been more important. For example, if a company is considering a building purchase, the low supply of available buildings is forcing more companies to consider new construction where they will have to compete against developers to buy land. Most developers would rather lease to tenants at today’s record high lease rates than sell a parcel of land to a business owner who wants to build a building. Even if a business owner can find a site to buy, building a new building is difficult. Building material lead times for delivery, such as concrete panels and structural steel, are 10-11 months out from the initial order. For tenant improvement work, typical lead times on materials such as lighting, door, frames, and dock equipment are being pushed out an additional 4-6 weeks on top of normal delivery times.
These extended lead times combined with a lack of quality space options has accelerated the need to make decisions sooner in the typical evaluation process. Historically, if a company was considering a relocation, the evaluation process would start on average of 12 months out from a lease expiration. In today’s market, we recommend that tenants prepare at least 18 months in advance. For a purchase, it is advised to begin at least 24 months from lease expiration.
