In an article published by GlobeSt.com on May 11, 2022, Russ Arouh, co-chair of AGG’s Industrial and Warehouse industry team, was quoted discussing delays in commercial build-out and tenant improvement due to supply chains and labor shortages.
“Every deal is a rush right now because companies need to order materials as soon as possible,” Arouh said. He estimated that there are typically three months of additional delay, which creates complications for landlord-tenant agreements and negotiations as tenants look for relief from potential delays.
“Cautious occupants are negotiating a longer build-out period. If a tenant usually needs 120 days to 150 days to build out, now they need 150 to 180 days to build out,” Arouh said. “Tenants are also trying to negotiate some form of rent abatement, and they are subjecting the build out to a robust force majeure clause, which includes things like supply chain disruption, lack of materials and labor shortages.”
In response, tenants that are willing to share the risk are more successful as landlords might be more flexible on terms if they share in the build out process in some compromised arrangement. “I am seeing work that is being done at the landlords’ expense; work that the landlord is doing as some sort of improvement allowance; and then work that the tenant is doing on their own,” Arouh said.
While the pandemic has shined a light on this challenge, Arouh noted that it was a rising issue pre-pandemic and a product of an increasingly global economy.
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- Russell A. Arouh