Podcast: Highway to the Supply Chain Zone

Location Cubed

Key Points:

• Product lead times are growing and sporadic.
• It is challenging to build uncertainty into fixed-price real estate contracts.
• It could take several months to see how interest rate increases affect the housing market.

Weaver’s Rob Nowak, Tax Partner, Real Estate, and Howard Altshuler, Partner-in-Charge, Real Estate and Construction Services, channeled their inner Siskel & Ebert with a movie review and brand-new studio to help talk about supply chain issues.

The new film Top Gun: Maverick was on Nowak’s mind as he was freshly back from his second viewing of the film. For his first viewing, Nowak watched the movie with Altshuler, and one thing they both recognized was that the theater struggled with supply chain issues. From half-stocked shelves of movie candy to fewer soda options, cinemas are not immune to the supply-chain woes plaguing all business areas.

Altshuler said distributors, like Amazon, are pumping the breaks on fulfillment center expansion and other property purchases on the commercial real estate front. Until the market settles, Amazon is shifting to subletting additional space and placing other build plans on hold. It is a little unclear, at this stage, if Amazon is weighing out the future to see if demand will hold up or if they don’t see supply-chain shortages ending anytime soon.

So, are product shortages the new normal? Indeed, product delays are something people need to adapt to, whether they like it or not. “Go back five, six years ago, you’d order something whether it be a part or material or book, and you were used to saying, well, I’m going to wait five-to-seven days to get that,” Nowak said. “Then we got spoiled with one-and two-day shipping.”

Material prices still impact the real estate industry. “I think the biggest issue right now, and what I’m hearing from talking to our construction group and construction clients, is there’s so much uncertainty around material prices and materials delivery,” Altshuler said. One of those uncertainties is interest rates, and Nowak and Altshuler said they’d keep an eye on what impact that will have on the real estate market and subsequent ripple effects on new construction.

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