Tough times bring building costs down for distribution and industry

Any ray of sunshine is welcome in the current economic situation, and as Chris Friendship from warehouse and distribution property specialist sbh points out, companies considering either a new build project or an extension should be able to negotiate keener prices.

“Times have never been tougher for builders, developers and anyone sitting on commercial building land. Conversely, warehousing and distribution companies are ideally placed to make a long-term investment in a new state-of-the-art warehouse at a cost way below what would have been possible at the start of 2008.

Land costs down
After seeing commercial and industrial land prices rise to some of the highest in the world, landlords are now facing falls already into double digits and with a long way to go, possibly down by 40% or more from their peak values. The RICS recently predicted further falls in the commercial property market, forecasting that prices could fall by half in 2010 from their 2007 peak.

Falling raw material costs
With global demand falling and the Chinese economy slowing down, the supply of raw materials is now more in line with demand, bringing at the least more stable prices and in many cases significant falls. Prices for oil, steel and many other commodities are down from their peaks, but there are still a few materials such as cement where costs are still rising.

Available labour
With dramatic falls in housing and a slow-down in commercial construction, labour shortages are unlikely to be a problem for some time. According to the RICS summer 2008 price review:
“The Tender Price Index forecasts private housing to be down 28 percent by the end of year and to fall a further 14 percent in 2009 and private industrial to see a fall of 21.7 percent in 2008 and 10 percent in 2009. “

Sound planning and guidance
It is likely that that the building industry’s cost base for the immediate future will be lower, and combined with the effects of supply exceeding demand and strong competition, clients should see far keener prices. During previous economic downturns many occupiers took the decision to invest when costs were low, winning when their markets turned back up. With current cost reductions and lower interest rates, investing in new warehousing should be a distinct priority when planning for the long term.

As well as capital costs, energy and utility costs will continue to be a significant factor in the future, so investing in technologies such as Building Management Systems, water recycling, efficient insulation systems and other energy-saving features will all pay dividends for years to come.

Sadly with management facing even greater pressure from some of the roughest economic waters for decades, taking the time to make the right decisions on building design and specifications may be a step too far. So using a specialist consultant such as sbh makes even more business sense than it did in the good times. With the experience of working for clients including Superdrug, Maplin, Rhenus Hauser, T K Maxx and Culina, sbh has the experience and expertise to help clients obtain both outstanding value for money and a productive, efficient facility.”

January - 2009