The biggest costs in the development or renovation of business real estate are for construction. Of those, a higher percentage goes into labor and planning than into the actual materials themselves.
Unfortunately, there are some serious issues today with construction management that cost real estate investors and business realtors money.
To keep commercial real estate profitable in these changing times, the process of development and remodeling must become more efficient.
Is Today’s Construction Industry Highly Inefficient?
As important as construction is to the development of business real estate, it is one of the most mismanaged elements in the property development and renovation process.
From underbidding jobs due to poor planning and insufficient R&D necessary for efficient projects to a lack of employee training, poor cash flow, and financial stability, many construction companies end up costing their clients more than may be realized.
Nowhere does the inefficiency of the industry show itself more yet remain mostly hidden is in the development of real estate investments.
Recognizing Poor Construction Management
Part of the problem with poor construction management is that business realtors may not even realize there is a problem.
When the economy is strong and business real estate is bringing top dollar, those higher sale prices and profits tend to disguise all the inefficiencies.
Once the market starts to slow and developers begin looking for ways to save money on their projects, the true extent of the mismanagement of many construction projects becomes known.
This is especially true when contractors underbid, run into problems meeting that bid, did not plan for inflation, or start having cash flow problems that slow progress.
Construction Mismanagement - Ripple Effect
These and other economic issues can affect risk level, the ability to get the best interest rates from lenders, and more than just the actual construction of the project.
It creates a ripple effect that goes from the contractor to the project owner then back to the contractor, reducing profitability and increasing costs for everyone.
Better Construction Management - Better Outcome
Business real estate experts agree that correcting this very significant problem requires better management of construction jobs.
All bidding should be done using finalized architect drawings of construction and renovation projects.
Contracting should consider things like market conditions, materials supply, inflation, and unexpected issues that can affect productivity.
Investors should work with consultants experienced in quoting construction work who can calculate a more accurate cost analysis of the job.
Such an analysis should account for different financial risks and can be presented to lenders as a solid building or renovation plan.
The Value of Focused Construction Contractors
As the real estate market begins to slow with the economy, it becomes more essential than ever for business realtors to manage efficient projects.
The primary focus must be working with construction contractors who are equally focused on good job management.
From the initial bid to the ribbon cutting, profitable real estate investments require less inefficiency and better construction management!