The current market conditions are impacting construction and development in different ways. The construction industry’s environment is inherently different from the office environment in that it is frequently open air, or individuals are widely dispersed indoors. This setting makes it much easier to proceed with work under current social distancing & CDC guidelines, and we are pushing forward with work on all of our projects with intense focus. The impacts we anticipate on our jobsites will likely be driven by the municipalities in which we are working. Different cities and states are issuing new regulations every day which may impact our ability to continue work. One of the current issues on our active jobsites are challenges getting permits and inspections promptly due to shortages in manpower or remote working environments. In all of our regions, we are proactively preparing for the possibility of a jobsite shut down by ensuring we have a safe and secure project with protected perimeters and roofing in place where possible. Our most significant opportunity and priority right now is to continue to serve our clients as a reliable partner. Hand-in-hand with this is our focus on providing the much-needed income for all of the hourly employees on our jobsites.

In the development world, projects in their early phases are most impacted by the current environment. As referenced above, getting timely entitlement approvals, construction permits and prompt inspections is becoming a challenge. For built projects in lease-up mode, we anticipate things could start to take a bit longer as building tours become trickier and companies pause to understand the impacts on their businesses . That said, at the time I write this, we are still actively negotiating leases for tenants who need space to occupy as soon as possible. Stabilized properties have a bit more breathing room to wait out the storm. Given the uncertainty in capital markets, with the denominator effect likely to play a role, many are predicting short to medium term upward cap rate movement. As a merchant developer heavily weighted toward Class A industrial, this could impact us less severely, but sales that we initially anticipated happening later this calendar year may see a delay. An opportunity we are keeping an eye on is previously controlled sites becoming available again, as some groups may choose to unload. Additionally, we expect that the current surge in e-commerce will have some permanency in the elevated demand – and that bodes well for distribution buildings.

Written by Molly McShane, Chief Operating Officer of The McShane Companies
Published by ULI Chicago

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