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episode # 34

One Commercial Real Estate Cost that’s Set to Skyrocket with Owen Lecky

Over the past 20 plus months we have all heard about supply chain issues, labor shortages, logistic challenges and this all has a direct impact on the construction of commercial and residential real estate in the province. This week Cory and Adam welcome Owen Lecky from Wales McLelland, an industry leader in commercial construction, to unwrap all the issues we have all been hearing about during the pandemic affecting our real estate market. Owen discusses supply costs skyrocketing, the challenges in finding sub trades, and why project timelines are being extended far beyond what anyone wants to see. He also sheds some light on markets developers are moving into and some markets that have seen pullback as population shifts throughout the province as the pandemic continues. Owen also speaks to the asset classes that have an increase in interest from developers and ones that have seen a pivot. Spoiler alert, every developer wants industrial, this could be the understatement of the year so far and we are not even 3 weeks into 2022.

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Episode Summary


 

Who is Owen Lecky?

I work at Wales McLelland, a construction company here in BC. Before that I was working at William Wright in Victoria. I got my start in real estate in Toronto. 

What happened in the construction industry in 2021?

There were some challenges in the construction industry in 2021 and a lot of that was a response to covid and supply chain issues. There was a big increase in construction costs as materials, like steel, went up 15-20%. When we have more time with projects, we try to order steel off-shore where it’s cheaper. But if we’re short on time, we have to use local steel, which is more expensive. 

A lot of sub trades didn’t want to lock in their prices due to the volatility. So we incurred some of that risk. But we did a good job mitigating that risk, ensuring our projects were delivered on time and on budget. We have good relationships with the sub trades out there. 

A trend we saw a lot in 2021 was developers bringing us in earlier and earlier in the process to help mitigate these risks. We are an open book when it comes to pricing and happy to partner with developers early in the process. 

What is Wales McLelland Construction?

Wales McLelland Construction has been working in BC for over 50 years and we are very established in the industry. We’ve also done some work in Alberta and Ontario. We brought in a development services team to be that arm of construction for developers. We want to anticipate the questions they’ll have.

We build warehouses, suburban offices, industrial buildings and the like. Those are our bread and butter. But we have had to shift and we’ll also build self-storage, schools, event centres, retail, etc. We don’t build residential as we’d rather focus on our niche with industrial buildings and offices. 

Should developers bring in construction earlier?

It’s been a positive change for us and our clients to bring in construction earlier. We can look at the environmental concerns and pre-prep to share our experience. Bringing in construction earlier has helped developers smooth the process and get their product delivered. 

What markets in BC are seeing a lot of industrial commercial real estate activity?

Covid has enhanced market trends, such as increasing the need for more ecommerce centres and distribution centres. We’re doing a lot of work in the Fraser Valley, which has been the case for the last five years. We’ve done a lot of projects in Campbell Heights in Surrey and East Richmond. A lot of people are looking at commercial projects in Surrey, Langley, etc. 

We’re also very busy on the Island. It’s busy everywhere in BC! There are no easy commercial sites left in Vancouver or Burnaby so developers have had to get creative. They’re looking elsewhere and trying to find solutions in a land-constrained market. 

How has covid impacted construction prices? What is the price per square foot for construction? 

We get asked about the price per square foot often but it’s difficult to give a number that will be accurate when the project actually starts. We need a full scope understanding of the project because no two projects are the same. So you want to give us a call before you purchase so we can provide those high level numbers. Once you have purchased, we can do a full budget analysis and give you a more exact number. 

We want to back up our numbers. The last thing we want to do is give you a quote and then come back a few months later and tell you it’s higher.

What has changed in industrial real estate?

Stacked industrial is a product we’re seeing more of. It makes sense in high price, land-constrained areas. Sites that were previously overlooked are now being considered when you add a second floor.

In terms of building design, we’re seeing much higher ceilings. We’re seeing 36-40 foot high ceilings to increase cubic capacity, whereas 26 feet used to be considered high. 

Owners are trying to find and create spaces that attract employees. So there’s a focus on enhanced amenities, gyms, daycares, cafeterias, etc. 

Power supply is another change we’ve seen in industrial real estate. These buildings are highly automated and need the proper power and technology to support that. 

Lastly, there’s implementing green technology. We’re seeing a lot of cool projects with timber that have us really excited. 

Does who is occupying these industrial spaces change the design? 

Absolutely, the end user changes the design and the use of a building. Being able to talk to the tenant has been very helpful. We’ve had a partnership with Amazon for the last few years and are in touch with them one to two times a week. That open dialogue helps us design these buildings and ensure the tenants are happy. Once the building is delivered, we’re still with our clients for the next year to show them how everything works in these highly automated buildings. 

What is the best area for investors trying to get into the commercial real estate market?

For this question, we would contact brokers and developers to get that insight. I think the Fraser Valley will continue to get built up. Maple Ridge, Chilliwack and Kamloops will see a lot of activity soon. 

What size developer do you work with at ​​Wales McLelland?

We work with any developer that comes through our door. We’ve had a lot of success delivering small bay strata lots for PC Urban Properties. But we’ve also worked with a lot of private, smaller groups that are trying to get into the market. 

What advice do you have for smaller investors entering the real estate market?

You want to make sure you’re addressing your pressure points up front. Give us a call so we can walk through the site and get some consultants involved. Risk identification is key. You don’t want to run into issues down the road and have to go back to the start. 

Where would you buy in BC right now?

I like the Island and I think there’s a lot of land to be developed here, especially in areas like Langford. I think Nanaimo will get busy too. Those are areas close to home for me. Kelowna is another area I’m interested in. There’s going to be even more activity happening there soon. 

We’re still doing most of our work in Surrey and South Vancouver; we’ll be busy there for a long time. We’ve had great success in Campbell Heights in Surrey and think there’s still room for growth. 

What would you tell someone getting into development or wanting to work with Wales McLelland?

Give us a call and we’ll give you an honest answer. We’re happy to deliver free knowledge and education. If we can help you, we’re excited to do that. But we’re also happy to redirect you to other opportunities, if needed. Starting a dialogue with a group like Wales McLelland is the way to be successful. 

Find out more: 

olecky@walesmclelland.com 

https://walesmclelland.com/

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