All business sectors were forced to adapt to the COVID-19 pandemic, and the construction industry was no exception. Working from home was implemented by many companies, but this is not possible from a construction perspective. A building can be designed remotely, but the physical creation of a building must be completed in person. We had several active construction projects in motion last year and we collectively worked together with our General Contractors to create a safe environment for the employees while also abiding by the constant changing recommendations set during the pandemic. Quite the roller coaster ride it has been and the ride continues into 2021!

In addition to the pandemic, the global construction industry faced numerous challenges in 2020 and 2021. The price escalation of key materials, extreme lead times, labor, along with the harsh winter storms in February have all added to the dynamic of the construction industry we live in today. On the bright side, the challenges have forced developers, owners, and contractors to adopt emerging technologies in the industry, along with focusing on value engineering opportunities throughout the project.

The largest challenge noted above has been price escalation and lead time disruption on our projects. Supply chains throughout all industries were disrupted by the coronavirus lock downs creating uncertainty in the supply chain. Strong consumer demand through the pandemic created a perfect storm for price escalation heading into 2021. We have seen continued escalation in almost every category of construction throughout our projects. The most notable materials affect-ed were steel and lumber. Steel became roughly 60% more expensive in comparison to June 2020 levels. Steel is a large component for industrial construction, so this has been the biggest impact on our construction budgets. There was a 10% peak in May 2021 with a slight regression in June 2021. Strong demand in the market has forecasts showing continued escalation for the remainder of 2021 with the hope of a plateau in pricing in early 2022. Lumber made headline news with the escalation from last year. In comparison to June 2020, lumber seen a 400% increase with a peak in May 2021. Prices have recently regressed to a 125% increase.

With all the challenges noted above for the construction industry, the outlook is promising. As noted in the previous quarterly update, the GROWTH in Manufacturing is strong. We continue to see a robust demand with our existing tenants looking for creative solutions for increasing volumes within their plants. Also, all our regional offices are continuing to see several opportunities for new build-to-suit opportunities in the manufacturing sector. The increase in pricing is concerning, however the low interest rates, increase in property values across the country, along with a strong demand for manufacturing space across the country still creates an attractive environment for further development in the industrial sector.

From a construction perspective, it has been a challenging year, but the continued efforts from our entire team have al-lowed us to find success in 2021. As always, thank you for entrusting us and for standing by Team Agracel. Should you have any questions about your individual portfolio, please reach out to us.

Thank you-

Mark S Keller
Executive Vice President and Director of Construction