MITIGATING MARKET CHALLENGES

THE DESIGN-BUILD DIFFERENCE

As price escalations and supply chain disruptions continue, ARCO ’s trusted design-build process & national buying power are decreasing the risk associated with today's challenging market.

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, 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, allows 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.

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DEMAND DRIVING GROWTH

Despite continuing market challenges, the construction industry and especially industrial development, continues to see dramatic growth.

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

Further, the influx of demand has kept capitalization rates low, demonstrating the willingness of investors to remain aggressive despite market challenges. Additionally, rising rent rates are helping to offset the increased construction costs for developers, as rent is often a small portion of the total cost equation for tenants in the logistics space.

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.

COMMODITY PRICING FLUCTUATIONS

While material pricing projections are no longer solely on an upward trajectory, contractors are working to address fluctuating prices.

105%
Increase
The steel industry saw prices spike more than 105% over the past 18 months.

Throughout 2020 and most of 2021 pricing for key commodities such as structural steel increased at a rapid rate. Moving into 2022, this trend has begun to level off. However, the market continues to see unpredictable material price fluctuations.

According to research from JLL, nonresidential construction input prices rose approximately 23% over the past year. Steel joists and decking faced some of the greatest impacts on price, undergoing an estimated 105% increase over the past 12 months and more than a 275% increase since 2020.

While fluctuations are occurring across the board, items having the most significant impact on overall project pricing include:

  • Steel (rebar, joists, deck, and structural)
  • Roofing (insulation & roof material)
  • PVC and HDPE Pipe (site utilities, MEP)
  • Pre-Cast Concrete Walls
  • Overhead Doors & Dock Equipment
  • Metal Studs/Drywall
BUDGET VALUES FOR NEW CONSTRUCTION (YEAR OVER COMPARISION):

Square Footage

2020

2021

Cost Per SF

Cost Per SF

% Increase

Low

High

Low

High

Low

High

Average

50,000 to 100,000

$58 

$75

$71

$84

22.41%

12.00%

17.21%

100,000 to 200,000

$48

$58

$64

$71

33.33%

22.41%

27.87%

200,000 to 350,000

$42

$48

$57

$64

35.71%

33.33%

34.52%

350,000 to 500,000

$36

$42

$50

$57

38.89%

35.71%

37.30%

500,000 to 750,000

$32

$36

$45

$50

40.63%

38.89%

39.76%

750,000+

$29

$32

$41

$45

41.38%

40.63%

41.00%

  • Site costs assume all utilities at the property lines, site contains 2′ or less cut/fill across it, minimal tree clearing
  • Buildings less than 200,000SF are 24-28′ clear. Larger than 200,000SF are 32-36′ clear. Larger than 500,000SF are 36-40′ clear.
  • Buildings are 250′ deep minimum for single load and 520′ deep minimum for crossdock.
  • Pricing assumes 2-3% office space in each building at full buildout.
  • This is a market average SF to build. Geographical areas, sites, municipal guidelines, etc. can vary these costs.
  • Land and permit/impact fee costs are not included in this pricing. This represents construction costs ONLY.
  • Figures based on empirical ARCO data over 100+ distribution projects estimated in the last 2 years.
PRICE ESCALATION SAMPLE PROJECTS
arco-national-construction-design-build-general-contractor-mitigating-market-challenges-distribution3
297,000 SF Distribution Facility

September 2021 to January 2022 Change: 13%

arco-national-construction-design-build-general-contractor-mitigating-market-challenges-distribution6
650,000 SF Distribution Facility
with 100,000 SF Cooler

March 2021 to July 2021 Change: 16%

arco-national-construction-design-build-general-contractor-mitigating-market-challenges-distribution7
430,000 SF Foodservice Distribution Facility

March 2021 to October 2021 Change: 27%

PROJECT 1

PROJECT 2

PROJECT 3 

Description of Work

Cost/SF

Cost/SF Increase

Cost/SF

Cost/SF Increase

Cost/SF

Cost/SF Increase

General Conditions

$1.48

$0.06

-

Surveying

$0.05

-

Testing

$0.28

-

Demolition

$0.16

-

Earthwork

$6.97

-

Site Utilities

$3.58

$0.69

Asphalt Paving

$2.91

-

Concrete

$9.22

$0.76

Precast/Tilt-Up

$5.32

$0.94

Steel & Metals

$15.86

$3.32

Rough Carpentry

$0.03

-

Roofing

$3.21

$0.57

Sealants & Caulking

$0.16

$0.01

Man Doors

$0.16

$0.01

Overhead Doors

$0.49

$0.29

Glass/Glazing

$0.07

-

Painting

$0.42

$0.05

Misc. Specialties

$0.01

-

Dock Equipment

$1.00

$0.30

HVAC

$0.99

$0.04

Fire Protection

$2.29

$0.49

Plumbing

$0.44

$0.11

Electrical

$2.90

$0.44

Fire Alarm

$0.08

-

Design

$0.99

-

Landscape Allowance

$0.43

-

Entrance Feature Allowance

$0.51

-

Office Allowance (3,000 SF @ $130/SF)

$1.31

$0.15

Building & Stormwater Permit Allowance

$0.23

-

Total

$61.54

$8.23

MATERIAL LEAD TIMES

As lead times remain long, partnering with a contractor capable of procuring materials in a project's earliest stages is essential.

In addition to cost escalations, lead times on key materials remain 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. However, because of ARCO’s national buying power, we have seen success procuring materials for projects at very early stages.

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, as well as precast concrete as panel beds are at or over capacity in many major markets. Fire protection piping and underground piping and conduit are trending similarly with long lead times and fluctuating prices.

KEY MATERIAL LEAD TIMES:

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

MOVING FORWARD WITH THE RIGHT CONTRACTOR

ARCOs design-build delivery and work in the proposal phase, including completing preliminary design, allows us to move quickly through the design and buyout phases of a project to decrease overall delivery time and secure material pricing.

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EXPERT PROPOSAL DELIVERY
ARCOs proposal delivery is based on minimal investment for due diligence materials and preliminary design. This allows pricing to locked in and key materials to be secured immediately upon execution of a letter of authorization.
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INTERNAL DESIGN SERVICES
Because we complete preliminary design internally, including steel design, full design and buyout can begin simultaneously, saving valuable time on the overall project schedule.
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NONTRADITIONAL BUYOUT
ARCO approaches procuring materials creatively, maximizing value and cutting out multiple layers of subcontractor markups.
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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.

Pictured above: 464,000 SF automated distribution facility under construction for Scannell Properties and Foot Locker in Reno, Nevada set to finish within an 8-month accelerated schedule.

ARCO’s tried and true design-build approach allows for us to determine construction cost significantly earlier than the traditional design-bid-build method. By working directly with the architect 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 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.

READY TO EXPERIENCE A BETTER WAY TO BUILD?

NEWS & INSIGHTS FROM ARCO
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ARCO Completes New Supply Chain Center and Processing Facility for Raving Fan Domino’s Pizza

ARCO recently completed a 59,832 SF food processing and distribution facility for Domino's Pizza in Katy, Texas! The state-of-the-art supply chain center features automated technology including ingredient batching, mixing and portioning, weight adjustment, tray stacking, and spiral coolers, which is capable of producing up to 40 million pounds of dough annually.

ARCO Ranked Largest Domestic Builder of Distribution & Warehouse Facilities

ARCO was recently ranked the largest domestic builder of distribution and warehouse facilities by Engineering News-Record! With over $1.4 billion in distribution projects performed in 2019 and 27 million square feet currently under construction, we are proud to truly be the best in the business!