Mitigating Market Challenges: The Design-Build Difference - Warehouse Contractor

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DESIGN-BUILD SOLUTIONS
FOR TODAY’S CHALLENGING MARKET

ARCO IS SUCCESSFULLY HELPING CLIENTS NAVIGATE PRICE ESCALATIONS AND MATERIAL DELAYS ON PROJECTS NATIONWIDE

After nearly two years since the onset of the Covid-19 pandemic, global supply chain disruptions continue to create challenges traditional contractors may have difficulty addressing. Prices remain above historical averages and material procurement issues are continuing, especially for key commodities such as structural steel, roofing, and precast concrete. However, the construction industry, and especially industrial development, continues to see significant growth as investors remain aggressive, and contractors like ARCO are finding ways to mitigate risk for building owners and investors.

ARCO’s design-build process and expert proposal delivery, combined with our significant national presence and buying power, allow for pricing to be locked in and key materials to be secured immediately upon execution of a letter of authorization, mitigating risk and saving valuable schedule time.

While the onset of heightened demand coincided with the beginning of the pandemic, according to reports from CBRE and other industry experts, growth is not expected to slow down anytime soon. Industrial construction volumes are at an all-time high, as absorption rates follow suit and end-users, especially major e-commerce players, continue to drive demand for logistics and distribution space.

Supply chain volatility caused by overwhelmed ports has also led to accelerated demand as end-users look to overcome the challenges of just-in-time production networks and mitigate future disruptions by stockpiling input materials and finished goods. This shift toward shorter, more resilient supply chains has further increased competition for prime real estate within the market, causing sharp rises in rent rates, which are helping to offset the increased construction costs for developers.

Further, the influx of demand fueled by low interest rates has kept capitalization rates low, demonstrating the willingness of investors to remain aggressive despite market challenges.

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With such high demand, developers are securing tenants more and more quickly. While 50% of industrial developments are still constructed on a speculative basis, most are leased prior to completion. Pictured above: a multi-building industrial park with more than 2.3 million SF of space built on a speculative basis for DHL.

Lead times on key materials continue to be long for a variety of resources including steel, roofing, and precast concrete. Backlogs remain high, and demand for commodities is expected to continue to outpace supply as the construction industry maintains a promising forecast, leading experts to predict shortages and delays well into 2022.

Pictured above: 104,375 SF of flexible industrial space under construction for Marcus Partners and Howland Development in Boston, Massachusetts.

Structural steel and roofing are among materials with the longest lead times. Precast concrete panel beds are at or over capacity in many major markets, as well. Fire protection piping and underground piping and conduit (PVC and HDPE based products) are trending similarly with long lead times and fluctuating prices.

Structural Steel: 6-9 Months
Roofing: 10-12 Months
Precast Concrete: 8-12 Months
Overhead Doors/Dock Equipment: 6-7 Months
Generators: 11-13 Months
Electrical Equipment: ~12 Months

Key materials can be purchased immediately upon project award with full design and buyout occurring simultaneously. Additionally, because of our national buying power, ARCO is often able to secure long-lead time items such as joists and deck directly from the manufacturer.

LOA Signed: 4/13/21
Construction Start: 8/16/21
Steel Delivery: 11/11/21; < 7 Months
Roofing Delivery: 12/8/21; < 8 Months
Anticipated Certificate of Occupancy: 4/29/22; ~12 Months

LOA Signed: 6/22/21
Construction Start: 8/23/21
Steel Delivery: 12/6/21; < 6 Months
Roofing Delivery: 1/27/22: < 7 Months
Anticipated Certificate of Occupancy: 7/21/22; ~11 Months

Although external factors continue to impact material pricing, partnering with a contractor that is able to secure materials quickly and lock in pricing early can help mitigate some risk for building owners and investors.

Because ARCO completes preliminary design internally during the proposal stage, structural steel and other major material pricing can be locked in on the day of project award, minimizing chances for escalation.

Steel (rebar, joists, deck, & structural)
Roofing (insulation & roof material)
PVC & HDPE Pipe (site utilities & MEP)

Precast Concrete Walls
Overhead Doors & Dock Equipment
Metal Studs/Drywall

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Pictured above: 167,575 SF speculative cold storage facility for BCB Development located in the Kansas City region. Increased demand for temperature-controlled space has led traditional developers to begin outfitting facilities for specialty end-users such as food and beverage companies.

EXPERT PROPOSAL DELIVERY

ARCO’s proposal delivery is based on an owner’s minimal investment for due diligence materials and preliminary design. This allows pricing to be locked in and key materials to be secured immediately upon execution of a letter of authorization.

INTERNAL DESIGN SERVICES

Because we complete preliminary design internally, including structural design, full design and buyout can begin simultaneously, saving valuable time on the overall project schedule.

NONTRADITIONAL BUYOUT

ARCO approaches procuring materials creatively, maximizing value and cutting out multiple layers of subcontractor markups.

NATIONAL BUYING POWER

As the 7th largest design-build contractor in the U.S. as ranked by ENR, ARCO has a significant presence in major markets nationwide, resulting in key materials purchased directly from the manufacturer and bulk buy benefits.

ARCO’s tried and true design-build approach allows us to determine construction costs significantly earlier than the traditional design-bid-build method. By working directly with the design team to ensure feasibility and design efficiency, all decisions can be made with full knowledge of their impact on cost and schedule at a much earlier date. ARCO can help reduce the impacts of rising material prices as early as the proposal stage by working with our client to obtain a letter of authorization and contract for materials to be placed on hold as soon as possible.

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DELIVERY

33% faster overall delivery

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SPEED

12% faster construction

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BUDGET

6% less total cost

ARCO is recognized by Engineering News-Record as the #1 largest domestic builder of distribution and warehouse facilities in the United States and the 7th largest design-build general contractor. Contact us today to learn more about how we can provide creative solutions and alternatives to make your warehouse construction project feasible, regardless of complexity or scale.

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Despite the challenges, by outfitting traditional warehouses with upgraded features to support temperature-controlled space, speculative development is becoming an advantageous way for investors to capitalize on the rapidly growing demand for cold storage facilities.

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