Property and Infrastructure Specialists
Views

Industrial developments & fund through risks

Industrial buildings used to be simple to develop.
Industrial Developments & Fund Through Risks

Institutional standards were well understood and generally dictated much of what was built. Sprinklers and engineered fire solutions were the norm and varied little from one site to the next. Floor loadings reflected the traditional racking systems, MHE and operations. 

That is changing rapidly. The supply chain industry is becoming acutely aware of the impact of efficiency on the cost of operations. Pressure is growing on supply chains to improve efficiency at every step, most notably through the introduction of automation and mechanisation. But also, through the realisation that the building design has a major role to play in efficiency. 

Modelling work produced by APP for a client two years ago proved that for their operation, every 0.1% improvement in efficiency saved $10M in operational costs over 10 years. While that example is specific to that operation, the principle applies to every supply chain business. At those levels of saving, the payback for a bespoke building compared to an institutional building becomes an interesting discussion. 

There is a growing integration between building design and operation from end users. Whereas historically, we saw the building and operation (including automation) managed separately. The developer provided the warehouse, the automation business fitted it out. Each party was focused on their area of expertise. 

With integration, we are seeing highly complex integrations and building footprints are being fine-tuned to derive maximum efficiency. Building specifications are also evolving to meet the demands of automation. Why compromise an automated solution to meet a traditional building specification when the real dollar savings come from the equipment?

So, for developers and contractors, where does risk come in to this?

Complex building specification and warranties

We are seeing completed solutions being issued to market for development. This has obvious benefits. Someone else has done the hard work and managed the complexity of the integration…great!  What we don’t know is how they got there and what design decisions were taken. The challenge for the developer/contractor is to unpack the design and find the risk. Often that risk will not be explicit but implied through performance obligations that must be translated by the developer into construction or design risk. 

Common areas of risk include extended or very high-risk warranties in floor and substructure design, structural performance, wi-fi performance and utility supplies. As an example, we have recently observed a situation where a cold chain operation would require a ceiling height greater than could be accommodated by conventional sprinkler design. Finding and negotiating a solution is the developer’s problem, with no guarantee that a solution can be achieved.

Operational performance risk being passed to the developer

Increased integration between the systems and the building means that change through design development can impact system performance. We are seeing performance obligations being passed on to developers, where the building handed over has to contribute to meeting tenant operational requirements and impacts caused by construction or design evolution are at the developer’s risk.

Changing construction methodology

Although more prevalent in Europe, integrated designs are leading to integrated construction. European system providers are not familiar with Australian building practices and coordination and integration during construction are particularly high risk. This risk can be compounded where the tenants design team is brought in as a delivery partner, leaving the developer or contractor to carry the integration risk with decision making being managed by external parties.

How do we mitigate risk? 

Through understanding the requirements. More than ever there is a need to unpack integrated requirements coming to market. Not just to understand the elemental building risk, but the associated performance and constructability aspects that are baked into these calls to market.

For that, the ability to pick apart the performance obligations, both explicit and implied, is critical to understanding and assessing the risks.

Enquire now