Wednesday 26th Oct 2016 - Logistics Manager

Falling prices mean now is time to build

Companies considering either a new-build project or an extension should be able to negotiate keener prices, according to Chris Friendship of warehouse and distribution property specialist sbh.

“Times have never been tougher for builders, developers and anyone sitting on commercial building land. Conversely, warehousing and distribution companies are ideally placed to make a long-term investment in a new state-of-the-art warehouse at a cost way below what would have been possible at the start of 2008.”

After seeing commercial and industrial land prices rise to some of the highest in the world, landlords are now facing falls already into double digits and with a long way to go, possibly down by 40 per cent or more from their peak values. The RICS recently predicted further falls in the commercial property market, forecasting that prices could fall by half in 2010 from their 2007 peak.

With global demand falling and the Chinese economy slowing down, the supply of raw materials is now more in line with demand, bringing at the least more stable prices and in many cases significant falls. Prices for oil, steel and many other commodities are down from their peaks, but there are still a few materials such as cement where costs are still rising.

With dramatic falls in housing and a slow-down in commercial construction, labour shortages are unlikely to be a problem for some time. According to the RICS summer 2008 price review: “The Tender Price Index forecasts private housing to be down 28 per cent by the end of the year and to fall a further 14 per cent in 2009, and private industrial to see a fall of 21.7 per cent in 2008 and ten per cent in 2009.”

It is likely that the building industry’s cost base for the immediate future will be lower, and combined with the effects of supply exceeding demand and strong competition, clients should see far keener prices. During previous economic downturns many occupiers took the decision to invest when costs were low, winning when their markets turned back up. With current cost reductions and lower interest rates, investing in new warehousing should be a distinct priority when planning for the long-term.

As well as capital costs, energy and utility costs will continue to be a significant factor in the future.