The Hollingsworth Companies has privately owned industrial parks for the last two decades, and we plan for the future with pre-permitted and pre-graded foundation-ready lots to be able to deliver buildings quickly and reduce the risks associated with a construction project. In 2016, we planned a pair of buildings in Andersonville Tennessee, each 126,000 SF. Both lots were pre-graded at that time, and one building is the mirror image of the other. We built the first building to house the corporate offices of our metal building supplier A&S Building Systems.
Four years later as we prepare to build the mirror image of the original building, A&S Building Systems has been rolled into a sister brand and become CECO Building Systems. The building is exactly the same; and, because it had already been engineered, we were able to put it straight in line for production. When we ordered the original building, it showed up on site ready for erection in 6 weeks. But, in today’s disrupted supply chain, the new building delivered not in 6 weeks but 6 months. In addition to the extended delivery time, the cost of the building package increased 199%.
We had to consider how this will affect our speculative industrial building program. We ordered this building and another in Q1 of 2021. We ordered four more in Q3, and these trends have only gotten worse. So, what does this mean for industrial building? We are also experiencing the highest demand for buildings on record, and each month it continues to increase. The options for industrial tenants are: existing spec buildings or build-to-suit projects. Today’s extended delivery schedules of up to two years to deliver a building makes the option of a build-to-suit simply impractical. Not only is the time stretching out, but the price volatility in that span is another risk that is unacceptable.
Our conclusion, in this market with constrained supply with record demand and rising inflation, is that we are better positioned to buy now and build as quickly as we can receive the materials. Even though the prices look high compared to the past, by the time we are finished with construction, it will be viewed as a bargain. Rents will have to rise; but, having a building ready for occupancy is the only option left for industrial tenants that need space. We have six buildings underway as we go to press. We don’t know what the future will bring, but we know some things will be the same, and some things different!