Crystal Ball 2022 Pt. 1 | Costs Continue to Rise
- Branch Transformation
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It’s a new year, which can only mean one thing: a new Crystal Ball series.
Part 1 – Costs Continue to Rise
While indicators seem to be pointing to a “recovery” from the pandemic, such as employment rates, and even total cases per day/month, one of the lagging hangover effects that has not begun to ease are construction costs.
One of the impacts of the pandemic, foreseen or not, was the spike in construction across the board, both residential and commercial.
As seen with the below graph from the U.S. Bureau of Labor Statistics, costs of materials have not only spiked, but are also the highest since World War II.
Regardless of prices, this has not translated into construction projects being put on ice – quite the opposite.
Cranes are flying over downtown skylines, and residential neighborhoods are replete with both new homes, remodels and extensions.
So what does this all mean for a Bank or Credit Union who is looking to grow, and looking at the branch as a main driver of this growth?
It comes down to a matter of investment.
While it may cost “more” to build a branch compared to pre-pandemic cost structures, if it’s growth you seek, and it can only/mostly be done via new members bringing in new Loans and Deposits via a new branch in a new Trade Area, you have to ask yourself if it’s worth the investment.
Wayne Gretzky famously said, “You miss 100% of the shots you don’t take.”
In banking growth terms, this quote can be translated into the simple economic situation of needing to invest to grow, or, “you have to spend money to make money.”
Material costs are predicted to rise, or stabilize at least through the first half of 2022, but what is the trade off of NOT doing anything? How can you value being stagnant, and how do you justify to the board to sit and wait for an unknown “cost” future?
The reality is, for a Bank or Credit Union looking to grow, you act now.
So, how do you counterbalance higher material costs for optimal margins?
Economies of Scale
Typically, when LEVEL5 begins a client engagement, the discussion of a branch is never singular, it typically involves 2 or more branches, even if the schedules for the builds is over a 12-36 month period.
If the plan is to indeed design and build more than one branch, buying the raw materials in advance will yield savings, and aid the overall margin.
Labor Discounts
Deals on labor can be had when multiple projects are happening either concurrently, or successively.
As the General Contractor, LEVEL5 has existing relationships with different Trades (sub-contractors) across the country, and have had success in booking these Trades for multiple jobs. This aid the sub-contractor, who can keep their workers engaged for longer.
Real Estate/Site Selection Transactions
LEVEL5 has been acquiring land and buildings for clients for over 20 years. In doing so, we veil your identity during the negotiation phase. The reason this is important is because in doing so, we have more negotiation power, and often save our clients up to 18% on the transaction price – helping your bottom line.
Time is Money
The other benefit of working with LEVEL5 when it comes to overall cost is the savings you’ll get from working with a proven national General Contractor. In today’s economic climate, the supply chain is compromised and there are labor shortages – both of these typically mean that a standard construction job inevitably is going over on schedule – and added time is added money.
We have been successful in queuing up work well in advance, which is why we subscribe to the “Design-Build” philosophy, not Design-Bid-Build.
Design-Build forecasts materials and labor during the planning stage. When things are known and predicted up front, plans can be made, and money can be saved.
If you’d like to discuss build costs and its impact to your growth plans, Contact Us today to get the conversation started.