Jim Hoolehan at Penntex Office

A reflection on the industry flux in 2023 and the positive signs pointing to a strong 2024.

If you’re a visual person, you might equate the increasing interest rates, rising construction costs and looming recession fears as the pins that popped the industrial construction balloon of 2022. Unprecedented post-COVID building activity in the warehouse and distribution sector dramatically decreased at the start of 2023, setting off a tumultuous year marked by a slowdown in activity for many. At Penntex, we had been steadily keeping a strategic and optimistic eye on the turbulence we anticipated the industry would need to weather in 2023, knowing being ready to support clients through the waves that would follow would mean not taking our foot off the figurative pedal.

Early in 2023, rising interest rates made it increasingly difficult for developers to justify the cost of new warehouse projects. At Penntex, our team remained focused on helping guide clients through strategic decision making that factored in not just what was happening in the moment they were evaluating a deal, but also overlaying insights and strategic forecasting on what was ahead in an industry that was rapidly beginning to recover from the impacts of COVID-19.

The slowdown of the early year quickened the pace of industry recovery. Supply caught up with demand and as material lead times dropped, so did costs. The price of steel, which had been at an all-time high (and a material many had watched as a bellwether of supply impacts) began to drop. Many wondered just how far pricing would fall. Other materials followed suit, with the exception of switchgear which remains an outlier that to this day requires a roughly 52-week lead time.

As the industry advanced into the latter part of 2023, the pendulum once again began to swing. Though interest rates continued to climb, material pricing drops returned a sensibility to the marketplace. Warehouse and distribution center projects that had been tabled during the height of activity began to come back to life. At Penntex we have continuously supported our developer partners through evaluations of the supply and pricing landscape to help guide strategic decisions that ensure pricing viability that allows them to “strike while the iron is hot.”

What’s ahead for the warehouse and distribution sector is a frequent topic of debate across the construction industry. Some sources note that recent Fed indications of stabilized interest rates (and anticipated forthcoming reductions), coupled with the industry’s self-correction on material supply and pricing are all indicators that 2024 will be another active year in industrial construction. Others go so far as to describe the sector as “dead.” The reality for many construction companies is as varied as the predictions. Choices made during the highs and lows post-COVID are making significant impacts on how firms are faring as warehouse and distribution construction enters this next phase in its evolution.

For Penntex, 2022 was an unprecedented year, but one we recognized was driven by a very particular set of industry circumstances. Moving into 2023 we focused on investing in our company and team through efforts that ensured we could continue to deliver excellence for every client we serve. From strategically growing the team, including adding two industry leaders in business development roles focused on cultivating connections with our clients and community to significant investments in training and equipment to power our continuous journey toward safety excellence, while the industry took pause, we pushed forward to ensure we were ready for the bounce back. This foresight and planning, coupled with the hard work and dedication of the team, has positioned Penntex for a strong 2024 as we continue to deliver excellence in construction for our warehouse and distribution partners.

At Penntex, our ability to cultivate successful long-term relationships with clients and partners is driven by a commitment to create personal and meaningful connections. Staying invested and connected within the region we are honored to serve, and where myself and our team live, work and play matters.  The Penntex Building Better promise is more than words on a website or over a door – it’s a commitment to our clients that myself and our senior leadership are personally invested and connected to the success of their projects and an assurance that we recognize that continuity in project leadership and the quality of work matters.

We take seriously the trust our clients place in us to steward their construction projects from start to finish. This includes a commitment to empowering them with the insights and resources to make strategic and informed decisions and have confidence in the fact that they are getting the right value for their investment. As the industry continues on what seems like a rollercoaster trajectory as it rebounds from COVID-19, we will continue to chart a course guided by a commitment to staying one step ahead and keeping the pedal down to ensure we can deliver success for every client we serve.

If you have questions about the warehouse and distribution construction landscape or are interested in discussing what’s coming into view for 2024 and beyond and how it will impact construction costs, activity and execution, reach out.