Lauren Ladowski, Vice President in ARCO/Murray’s Dallas office, shared some key insights on how the industry is responding to rising material costs and supply chain shortages as well as new office trends for optimizing space usage in a post-COVID environment.
Below are a few highlights:
Can you explain the good, bad and ugly as it relates to the DFW office market?
The good is that everyone is busy and there is a large uptick in activity when you compare the DFW office market to other large metropolitan areas. The bad news is we are seeing a lot of price volatility and increases as it relates to construction material costs. ENR’s September 2021 Building Cost Index has the annual inflation rate at 14.5%, whereas the average over the last 100+ years has hovered just over 3.4-3.6% annually. Material cost increases and supply chain shortages are real and can severely impact project schedules. This, in turn, can affect leases and the amount of TI dollars allocated towards an office buildout.
How is the construction industry responding to the rising material costs and supply chain shortages?
An office is not like a typical construction job. You want to be designed, permitted and constructed within a four-to-seven-month timeframe. Typically, the industry has defaulted to more of a linear structure where you complete a space plan, then budget and design it. When you finally get to the actual construction phase, two months have gone by and material prices throw everything off. Now, you need to value engineer the design and strategically procure materials to get back on budget. It is not a sustainable or cost-effective process.
Instead, it is important for our industry to combine design and construction teams earlier in the process. You will be able to get live feedback on the cost of finishes, and by the time design is completed, you can already have the studs, mechanical equipment, electrical service…etc. on order. This can reduce potential material delays and compress the overall design and construction process. A national procurement strategy and construction technology suite are two other ways the construction industry is responding. Luckily, as a national design-builder, ARCO is already set-up this way for faster project delivery.
How are businesses designing and building their office space post-pandemic?
Naturally, we are seeing a range when it comes to design and space planning. We have a 50,000 SF office client in Westlake that is operating as it had pre-COVID. Then, we have a client in Addison that previously had 35,000 SF and are downsizing to a new 11,000 SF spot in Richardson. The client is fully embracing a flexible office workspace incorporating a lot of collaborative areas for when associates are in the office.
Moving forward we will see everyone really optimize their square footage. That might mean something different for every company depending on their culture, what employees need and what is important to retain those employees. Overall though most companies are focusing on amenity spaces, outdoor areas, and collaboration rooms. It will be important to have no wasted space within the office footprint.
How can the DFW office market benefit from increased technology usage?
There is a lot of technology that can be used from a design standpoint. Revit and BIM360 are more mainstream now and used readily to coordinate everything before anyone is onsite. Construction management platforms like Procore enable us to deliver projects faster while giving clients greater accessibility regardless of where they are working. Going back to what I said previously, if you can combine the teams earlier and deliver faster using technology, it will help offset some of the material and supply chain challenges.
If you are interested in talking through a potential DFW office project – or any tenant improvement project – contact us today.