Supply chain and labor shortage issues are causing significantly longer times for commercial build-out and tenant improvement projects. These projects, on average, usually take about six months to complete, but complications are sometimes adding as much as an additional three months to complete.
The problems affect both industrial and office projects, and the messiness complicates landlord-tenant agreements and the commencement of rent payments. Some tenants are looking for relief from potential delays by negotiating longer build-out periods. Other tenants are also trying to negotiate some form of rent abatement and subjecting build-outs to force majeure clauses. Cost is also a concern. JLL’s latest office fit-out guide revealed that construction costs for office fit-outs are up 23 percent this year.
The delays in projects have been more disruptive than the higher cost of materials, according to Chris Bond, Founding Partner of Turton Bond, a construction consultancy service. “We’ve had to beg, borrow, and steal to get things done,” Bond joked to me in a recent interview. “Projects are still getting done, but it’s taking much longer.”
The global supply chain mess isn’t dominating the news as much lately, but it’s still causing massive headaches in the real estate industry. Experts expected things to get better throughout 2022, but for some items, it’s gotten worse because of the war in Ukraine and China’s zero-COVID policy. It seems like for the foreseeable future supply chain disruptions and the higher costs associated with them are going to be affecting commercial leasing.