By: Chelsea Porter | October 5, 2023
Recent Analysis Shows 10% Decrease in Ground-Up Industrial Pricing
Over the past few years, the design and construction of the industrial product has constantly evolved as the commercial real estate industry tried to meet the demands of the market post-Covid. Constraints in the supply chain coupled with labor strains challenged the industry to “think outside of the box” implementing new designs and construction strategies such as utilizing castellated beams and moving away from the design-bid-build model to the design-build and design-assist models. As we look to 2024 and 2025, what are the new challenges and solutions in the Arizona industrial market and what are some new trends? Renaissance’s pre-construction team forecasts a bright future for the Arizona industrial market, based on Arizona’s business-friendly environment, unique emerging design trends, evolving product demands, and more competitive construction costs.
Many global companies such as TSMC, Rauch, Red Bull, and Meyer Burger, have chosen to open operations in Arizona for an array of reasons. Renaissance’s global clients shared that their reasons for choosing the Grand Canyon state came down to the business-friendly environment, strategic location, skilled workforce, collaborative business ecosystem, quality of life, infrastructure connectivity, renewable energy potential, cultural diversity, research and development opportunities, and supportive government initiatives. The business friendly and supportive government initiatives are demonstrated through Arizona’s favorable tax policies, streamlined regulations, state incentives to establish their operations here, free trade agreements with multiple countries, and grants that have been implemented over the past decade to boost the local economy. These policies coupled with Arizona’s location and lower cost of business compared to other international hubs such as LA create a strategic gateway to both domestic and international markets. Educational institutions such as Arizona State University have developed an array of programs focused on research and development, innovation, and renewable energy that provide a pool of white-collar talent to support the tech, renewable energy, and various manufacturing companies. These programs also lend themselves to creating a collaborative business ecosystem as the environment spurs innovation and allows companies to find opportunities for synergy. This combined with the cultural diversity and quality of life creates an attractive environment for moving their current talent to the region and attracting new local talent. A diverse cultural environment aids in promoting inclusivity and allows global businesses to connect with a broad customer base.
New industrial design trends have been driven by international clientele perspectives as well as a national movement towards employee friendly environments, renewable energy, and “smart growth”. Arizona’s cities have been implementing some of these trends as we are seeing an increase in design elements to the exterior of buildings, an increase in green space, and the incorporation of unique employee environments not often seen in the industrial space such as pickle ball courts and tracks. Other new design elements such as castellated beams were initially driven by its competitive lead time and are now being implemented for the unique appearance. Overall, there has been an increase in design elements required by the cities and clients. This challenges architects and contractors to work together in how to implement these elements in cost effective ways. Another design trend, our team has been seeing in the industrial market the past 6-8 months has been the shift from the demand 350,000 SF+ buildings to industrial sites comprised of retail-flex and smaller industrial buildings. Due to the current availability of the 350,000 SF+ industrial product, we expect to see the flex and smaller industrial product trend continue into next year.
Renaissance’s pre-construction team is forecasting a more favorable pricing environment in the year ahead based on a recent analysis showing a 10% decrease in industrial construction costs from last year. The team believes that the softening of the supply chain, decrease in construction activity on billion projects such as TSMC, and suppliers catching up to demand all lend to why we are seeing this decrease in industrial construction costs. Another positive trend has been the decrease in lead times for cost saving systems such as the hybrid roof system.tructures, RTU’s, HVAC, and dock levelers to name a few. The long lead item driving our current industrial construction schedules is the availability of SES sections. Unfortunately, SES gear has not followed this trend and the lead time remains at 50-52 weeks due to a nationwide increase in the construction of electrical infrastructure driven by new sustainable trends such as electric vehicles.
Overall, Renaissance is conservative yet positive in Arizona’s 2024-2025 industrial market. The state needs to remain business and developer friendly, and we all need to work together through design-build and design-assist processes leading to more accurate and efficient construction costs and schedules.