SUPPLY CHAIN Market Update Bulletin September 2023
Lead Author: David C. Hamilton, Vice President, Dir. of Purchasing Introduction Reporting from major sources like CoStar have shown optimistic data about the number of leases being signed recently for commercial office space, albeit many for smaller square footages. Major financial companies are targeting investment in distressed real estate, signaling that the weakness in the market can be an opportunity. Recently Fortress announced a $1bn acquisition of commercial real estate loans, leading some to believe that they too feel bullish about a rebound of real estate. These points underpin our belief that commercial office construction could remain strong this fall, along with already strong activity continuing in industrial manufacturing and data center construction. As a result, demand for equipment such as electrical and HVAC gear continues to remain high, leaving little improvement in lead times.
Economic Outlook •
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As reported in multiple publications, outlook for the economy has improved and recession fears have abated somewhat, but high interest rates continue to linger, adding to uncertainty. Mandatory return-to-work policies implemented by multiple corporations hints at a potential increase in the commercial interiors market. Electrical gear and related component prices continue to stay inflated, in addition to supply shortages, with little to no sign of relief well into 2024. Copper demand from the growth of EVs, solar, and green technologies remains a concern for material costs, availability, and lead times, coupled with continuing geopolitical unrest in many producing countries.
Logistics •
Subcontractor Financials • •
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Mitigation Strategies
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Importers are receiving good news as ocean freight prices decrease along with state and federal grants to modernize and reduce congestion at California ports.
Risk of subcontractor default remains elevated in the US North East and West Coast markets, specifically for commercial interiors projects. Careful evaluation of bids and, more importantly, bidders using thorough prequalification from various angles is crucial to gaining a holistic evaluation. Effective cashflow management is vital for the sustenance of subcontractors. Ensuring timely compensation guarantees that our partnering tradespeople have the necessary funds to efficiently acquire materials and sustain an appropriate labor force. Subcontractor Default Insurance (SDI) is more essential than ever, helping to ensure projects have minimal delays should a subcontractor default.