< Previous10 MAY 2019 SI T E S E L E C T IO Nby John SalustriRising construction costs got you down? Are you spending sleepless nights watching tariffs on steel jump out of control? Do labor shortages make you want to dash your head against a wall? Rest easy, gentle reader. Relief is on the way. Well, sort of. There’s no easing on the costs of construction, which, according to the most recent IHS Markit PEG Engineering and Construction Cost Index, are now in their 23rd straight month of increases. What we can offer you, however, is advice from other IAMC members who are facing the same issue and, to one extent or another, facing it down. Indeed, there are measures you can take to cap costs. But the secret word shared by all of the executives we interviewed was . . . value. We’ll take a look at that shortly. First, let’s explore the direct approach to cost control: Air Manufacturing Innovation, a wholly owned subsidiary of Nike, Inc., in Beaverton, Oregon, has been riding the ongoing wave of consumer demand a still-vibrant economy brings, and Director of Global Facilities Daniel Pierson reports robust “activity in both small and large projects.” In addition, he sees 2019 keeping pace with that growth in manufacturing and warehousing facilities for both raw materials and finished product. With that volume of construction on his plate, of course he’s seen the increase in labor and material costs, both at his present gig and prior, when he was a GC. It’s ironic, he says, considering that, “During the Great Recession you had subcontractors cutting their margins. Now there’s so much work that contractors can be choosier and raise their margins because they know they can get it. There’s more than enough work to go around, so much that sometimes even contractors have trouble finding labor. As a result, you pay a premium for people to work your job.”Chad Freeman doesn’t have to deal with Pierson’s annual build volume. But the director of corporate development for Henningsen Cold Storage Co. in Hillsboro, Oregon, does have to deal with the same cost issues. “Over the past six years we’ve built about one facility a year,” he explains. “We’ve seen a significant amount of increase in construction, easily 15 to 25 percent, although, obviously, it varies across markets and across the U.S. It’s led by labor, and then by the price of steel, which has been directly impacted by import tariffs. We’re all searching for an answer, for the silver bullet. But there’s no silver bullet out there.”Getting to Know You What is out there, however, is relationships.“We try to find where there’s commonality among our vendors,” says Steve Hess, vice president of North America real estate development for DHL Supply Chain in Columbus, Ohio. Hess anticipates bringing some 2.5 million square feet out of the ground this year, on par with 2018.With multiple projects growing around the country, it can be hard to keep track of vendors doing double duty elsewhere. “And they didn’t necessarily connect the dots with us either,” he says. But once those dots connected, “We saw mutual benefits, and we were able to lock in better pricing on multiple locations. And, possibly more important, we were able to get commitments on scheduling that we were struggling with, which is an absolute cost driver. So it’s definitely worth it to make those connections.”Exploring Options to Cope with Rising Construction Costs“We’re all searching for an answer, for the silver bullet. But there’s no silver bullet out there.” — Chad Freeman“You can scale back the project and cut scope or put it on hold. Those are tough calls because, in general, costs never get cheaper.” — Daniel Pierson12 MAY 2019 SI T E S E L E C T IO N Pierson agrees. “We always work with our internal procurement team to discern if there are other groups across the company doing construction or purchasing. Through those connections, we can learn first, what the local market pricing is, and second, if we can combine jobs to get better buying power or more attention from the contractor pool.”He adds that phasing projects is another option for spreading costs out: “We explore if there’s a way to build to capacity over time in order to scale that spend. Or if it’s a multi-year project, maybe we have to decide how much we’ll need each year. “ Admittedly, there are challenges with that approach. “Sometimes those decisions are out of our control. If there’s a major tariff, there’s not much you can do. You can scale back the project and cut scope or put it on hold. Those are tough calls because, in general, costs never get cheaper, unless there’s a recession. But then the question becomes if you’re still in an expansion mode based on consumer demand.” Another question is how much you can cut back without cutting into the bone of a quality build. “For example,” Freeman offers, “we typically build a very high-quality building. We plan to own and operate it for decades, so we take the long-term view. We haven’t compromised on that, but that’s one area we can look at. We’ll also work with the public sector to leverage incentives that could help contain costs.”The Value PropOur experts indicated that another cost-mitigation technique is to take the long view, which means adding value. “You want to neutralize cost problems as much as you can,” says Hess. “One way is to add value through such approaches as a better location or a more efficient building.” Keep in mind that, as Pierson indicates, value is a downstream upside. It may not put up-front cash in your pocket. “It could be a non-economic consideration,” he says, “such as better service from a vendor if that vendor is getting more pooled work across an organization. More work makes you a preferred customer, maybe even with dedicated subcontractor staffing.” He asks if your contractors are order-takers or partners. “When you move on to more of a partnership, they sometimes can help you see a problem differently. You have to trust their advice at a certain point because if that contractor is building for companies like yours every day, they have expertise and demonstrated success. Of course, you have to ask the right questions.” It doesn’t hurt to nail the partnership down with a written contract that includes review periods and vendor feedback.As Hess adds, one of those “right questions” might actually be: “Can we get better pricing having a relationship with you than we can just having you bid to a contractor?”“I have to believe nine times out of 10 they’ll say yes,” says Hess. And don’t limit those partnerships to the obvious vendors either. “Think of lighting, IT, even racking,” he says. He estimates shaving as much as 5% off the cost of a build, and “it’s absolutely worth the effort.”There are operational considerations that contribute equally to value and mitigating up-front outlays. “One way to recoup some of the cost of construction is to increase the value of the operation through such things as energy efficiency,” says Freeman. Chad Freeman admits he might not have the pipeline to deal with that Hess and Pierson do. But he puts the issue into terms everyone can agree with: “We’ll continue to balance that value proposition and the long-term nature of what we’re constructing, and we’ll work with everybody who can help us manage those costs.”“You want to neutralize cost problems as much as you can. One way is to add value through such approaches as a better location or a more efficient building.” — Steve Hess14 MAY 2019 SI T E S E L E C T IO NWORLD REPORTSby G ARY DAUGHTERSgar y.daug hter s @ site s ele c tion.c om413Follow the MoneyRemittances to low-and-middle-income countries reached a record high $529 billion in 2018, according to the World Bank’s latest Migration and Development Brief. The 9.6% increase over 2017, the World Bank says, was driven by a stronger U.S. economy and a rebound in outward ows from Gulf Cooperation Council states and the Russian Federation.African leaders are realizing that improving the ease of doing business is not just about people coming from outside the continent. It’s about encouraging your own local investors and African investors.”— Ngozi Okonjo-Iwealad, Nigerian EconomistAfrican leaders are realizing that Top Remittance RecipientsIndia $79 billionChina $67 billionMexico $36 billionPhilippines $34 billionEgypt $29 billionSource: World Bank2222222222222222222222222222222222222222The Natural LookA tree growing out of a building used to be a sign of severe neglect. Today, less so. Designs that integrate nature swept the 2019 MIPIM Awards at the organization’s international property event held each March in Cannes. Some 10,000 trees and shrubs dominate Wonderwoods, MIPIM’s overall winner, a residential/commercial complex projected for a 2020 completion in Utrecht, the Netherlands. Foliage from the twin towers is expected to absorb 5.4 tons of carbon dioxide per year.2 S I T E S E L E C T I O N MAY 2019 1515443Renewables RisingWith a worldwide addition of 171 gigawatts (GW) last year, renewable energy now accounts for one-third of global power capacity, according to the 2019 assessment by the International Renewable Energy Agency (ARENA). Solar capacity, says ARENA, grew by 94 GW, including 64 GW installed in Asia. Wind power added 49 GW, with 20 GW coming from China. One GW can supply power to about 700,000 homes per day. Geothermal and bioenergy, small players by comparison, each registered accelerating growth last year, with the growth of hydropower slowing.Brexit: London’s LossesInformation supplied by Statista shows that the City of London has lost 8,180 nancial services jobs since 2016, the year UK voters approved a withdrawal from the European Union. The roughly 5% job loss (thus far) pales next to worst-case forecasts that nancial rms might move hundreds of thousands of jobs to continental Europe, chie y to Paris and Frankfurt.Talent SearchWhich countries attract the most highly skilled workers from abroad? Using data from the United Nations and Global Talent Competitiveness, KDM Engineering offers a breakdown of the best.Please don’t listen to the Brexiteers’ madness which asserts that because we have huge plants here, we will not move. ey are wrong.”— Tom Enders, CEO, AirbusPlease don’t listen Please don’t listen Please don’t listen Please don’t listen Please don’t listen Please don’t listen Please don’t listen Please don’t listen Please don’t listen Please don’t listen Please don’t listen 1 Switzerland 6 Australia 2 Singapore 7 Luxembourg 3 United Kingdom 8 Denmark 4 United States 9 Finland 5 Sweden 10 NorwaySource: KDM Engineering5PLEASE VISIT OUR WEBSITE TO REGISTER TODAY!internationalfdisummit.com28-30 OCTOBER 2019Conway, in partnership with the Huzhou Municipal Bureau of Commerce is thrilled to introduce the fi rst Chinese inbound / outbound FDI event of its kind, to be held 28 - 30 October at the iconic Sheraton Huzhou Hot Spring Resort.JOIN US FOR THIS WORLD-CLASS EVENT! S I T E S E L E C T I O N MAY 2019 17China’sMEDICINE CABINETChina’sMEDICINE CABINETAll things biomedical and pharmaceutical can be found in the Nanjing Biotech and Pharmaceutical Valley, a key part of the Nanjing Jiangbei New Area.You can tell which way Nanjing is expanding by the many new bridges, tunnels and metro lines being built across, or under, the Yangtse River, north of the ancient city’s central business district. All this infrastructure ends up in the Nanjing Jiangbei New Area, a district created by the State Council in to serve as a new growth engine for eastern China in the Yangtse Delta Zone. At nearly square kilometers, or square miles, the Nanjing Jiangbei New Area is home to several industrial parks, including the Nanjing Chemical Industrial Park, which is known as the chemical industry cradle of modern China.It also is home to the Nanjing Biotech and Pharmaceutical Valley (NJBPV) with square kilometers ( . square miles) of research and development and manufacturing space. It’s the heart of Gene City — a cluster of life sciences and healthcare companies, research facilities, hospitals and business-support services. Gene City is one by MARK ARENDmar k .ar end@ site s ele c tion.c omINVESTMENT PROFILE:NANJING, CHINA, PART 2Geneseeq Technology is based in the Sino-Danish Science Park in the Nanjing Biotech and Pharmaceutical Valley.Next >