Tag Archive for: industrial space demand

,

Here Come The Next Waves Of Industrial Demand

money wave_canstockphoto62608698-5-770x320

When a company wants to build a new building for industrial use, it would typically start with the real estate manager and the supply chain manager meeting with the C suite to fund the project.

During the pandemic they might well have gotten what they wanted. But now these executives are likely leaving that meeting empty-handed. The C suite mantra to these and many other requests is to avoid committing capital as much as possible.  ‘Come back with a plan B,’ they are told.

Jake Fraker, Global Head of Industrial & Logistics Capital Markets for Newmark, relayed this hypothetical example during a webinar held by GlobeSt.com last week and sponsored by JLL Technologies. It was a telling illustration of the state of demand for industrial product at the moment. The demand is there, clearly, but current financial conditions have made decision makers cautious about investing in both assets and additional space.

“No one is building new buildings if they can get by with a slight delay,” Fraker said.

Newmark stats on third quarter activity also demonstrate this trend. Nationally, absorption measured 47 million square feet for the quarter, a solid if muted demand, Newmark said, with the volume approximately 15 million square feet less than 2019’s quarterly average net absorption.

“The signs of this cautiousness are everywhere,” Fraker said. “We are seeing careful controls on new supplies. There are a few places where there might be an oversupply but then the developers slow down or the lending partners slow it down.”

That said, this current state of demand is not even remotely reflective of the wave of activity that experts expect in the future for the industrial class.

E-commerce-generated demand continues, according to participant Alex Motiuk, director of acquisitions for Greek Real Estate Partners. Couple that with other trends emerging in the marketplace, such as the growth of onshoring and nearshoring, the increasingly globalized nature of supply chains and the rise of secondary markets in these strategies and experts are quite confident that industrial will continue to be a top asset class for commercial real estate.

During the pandemic, the sensitivity of global supply chains became painfully apparent to all parties in this sector and the memories of empty store shelves that often resulted from a sudden change in consumer behavior – think back to the run on toilet paper when it became apparent how serious COVID-19 was – have not been forgotten.

“The global supply chain is completely intertwined with the logistics sector,” Fraker said.

Even despite the current focus on costs, many companies continue to lease additional distribution space than they typically need to ensure their supply chains continue to flow smoothly – a trend that is expected to continue into the future.

“We have seen much higher inventory volumes, a lot more inventory to manage,” said Motiuk. “Tenants are now much more methodological and try to get ahead of requirements. At the same time, U.S. companies and foreign companies that serve the U.S. markets have recognized that global supply chains are vulnerable to geopolitical risk.”

Hence the rise of onshoring and nearshoring. To be sure, these trends have been long standing ones driven by complex factors. But they have lately achieved a heightened status thanks to certain U.S. legislation such as the CHIPS Act and the Inflation Reduction Act, which have encouraged manufacturing on U.S. soil. Other companies, recognizing that China has become an increasingly unstable partner due to political concerns, are migrating operations to Mexico. Nearby industrial facilities in the U.S. are subsequently benefiting from a huge boom in demand. Indeed, in the third quarter, secondary markets absorbed an increasingly larger share of demand, Newmark reported.

“There has been a big explosion in development in Texas and Arizona,” Conrad Madsen III, co-founder of Paladin Partners and another participant in the webinar, said. “Institutional capital never was interested in those markets before but now it is flowing heavily.”

“Global investors are all familiar with the key supply chain markets, such as Memphis Tenn., or Louisville, Ky.,” Fraker said. “We have a project in El Paso and it is getting a lot of attention from institutional investors. That is because El Paso is where onshoring meets nearshoring. El Paso is just one example, though. Today, many secondary markets are showing up on investment committees’ agenda as they eye expected future demand.”

 

Source: GlobeSt

,

Impact Of Rising Interest Rates Mixed On Commercial Real Estate

Red Percentage Symbol Surrounded By Dollar Sign

The past two years were like nothing ever before seen in South Florida.

A period of record growth was fueled by inbound migration, strong consumer spending and record low interest rates — all of which drove billions of dollars invested in the development of millions of square feet of commercial real estate.

Much of this was brought on by the pandemic. Now, the pandemic has subsided and the South Florida CRE market has come to a moment of reckoning. Or has it?

The Federal Reserve has raised interest rates five times this year, including the increase of 75 basis points on Sept. 21, all in an effort to stem inflation. The Fed’s effort to keep the economy moving at the start of the pandemic led to the slashing of its target rate to 0%-to-0.25%. It remained there for the next two years, until March, when it set its first increase of 25 basis points.

The era of relatively cheap money for commercial and residential borrowers has come to an end. While the current rate of around 3% to 3.25% still is historically low, borrowing costs are at their highest level since 2019. In June, Federal Reserve Chairman Jerome Powell noted that the rate could reach 3.8% by late 2023. Simply put: These are the most aggressive rate hikes in generations.

This leaves developers and owners of office, industrial and retail projects to perform a delicate balancing and forecasting act incorporating borrowing costs versus long-term demand.

With borrowing costs rising, and fears of inflation and a possible recession looming, how will CRE across South Florida respond? It’s impossible to judge from how other markets are responding. Some have seen commercial projects tabled and vacancies rising, even if rents remain stable.

South Florida Is The Outlier In The CRE Marketplace

Development remains robust. Warehouse, logistics and industrial projects continue unabated from Homestead in the South and Palm Beach County’s Western expanse to the North, with numerous infill projects in between. Luxury rental apartments in hot markets, such as Brickell, Coral Gables, Fort Lauderdale’s Flagler Village and downtown West Palm Beach, are rising to meet the demand of the more than 800 new arrivals still coming to Florida daily.

Conflicts exist between remote workers and their employers calling for a “return to the office;” and with the hybrid workplace model continuing to evolve, future office needs remain unknown. Yet, the region has numerous dedicated and mixed-use Class A projects in development.

While the concept of “headwinds” comes up in any conversation about the unknown impacts of rising interest rates, inflation and the possibility of recession, South Florida and the state are outliers for other reasons. Whether through REITs (real estate investment trusts), private equity, hedge funds and other institutional capital seeking a solid vehicle for their funds; family offices and investors looking for a hedge against inflation; Latin American families seeking a less turbulent harbor for their money; those looking to real estate as a hedge against inflation; or developers bullish on local market prospects, Florida is rich with liquidity.

 

Source: SFBJ

Miami Developer Buys Coral Springs Warehouse For $15.7M

10349421 - hand of businessman holding dollars

A company managed by Jon Samuel, the developer of Midtown Miami, paid $15.7 million for a warehouse in Coral Springs.

Coral Vutec Properties LLC, managed by Daniel Sinkoff, sold the 105,183-square-foot warehouse at 11711 W. Sample Road to MGX I LLC, managed by Samuel of Miami-based Midtown Group. The buyer was represented by Josh Wade of Delray Beach-based Flagship Retail Advisors.

The price equated to $149 per square foot. The warehouse last traded for $5.25 million in 2009, so it gained in value. One of the largest tenants is Access Fabricators Corp., which is also managed by Sinkoff.

 

 

Click here to read more about this story.

Industrial Construction Reaches All-Time High, But Tenants Will Still Struggle to Find Space

industrial 770x320

In Prologis’ recent third quarter earnings call, CEO Hamid Moghadam was blunt in his assessment of the industrial sector’s supply-demand equilibrium:

“With vacancies at unprecedented lows, space in our markets is effectively sold out.”

It is, of course, little secret that industrial rents are at a premium and tenants are jockeying for what space they can find. But new details in Prologis’ Industrial Business Indicator report show just how much of an uphill climb supply will have before it meets current and future demand.

Prologis reports that construction starts have risen to an all time high of 120 million square feet, with speculative construction representing roughly 88% of all starts in the quarter. But pre-leasing has also reached its own record of 70%. That, coupled with construction delays, which are spreading out deliveries, means the risk of oversupply is low.

“We do not anticipate significant supply relief in most key locations; new supply is concentrated in low-barrier secondary and tertiary markets and the outlying submarkets of inland markets,” Prologis Research said.

Indeed, it concludes that demand is set to outpace new supply through the near term. The reasons include the ongoing rise of e-commerce penetration and companies’ move to build resilience into their supply chains. In addition, retail sales are robust, and trillions of dollars in pent-up savings and record-high consumer net worth should support future spending growth.

Prologis Research forecasts net absorption of 375 million square feet and deliveries of 285 million square feet for the full year.

“Looking ahead, we expect that market conditions will remain exceptionally competitive for customers looking to expand, making it essential to plan early and move quickly.”

 

Source: GlobeSt.

, ,

Strong Economy Sets Stage For More Growth In Palm Beach County In 2018

Meet the new year, same as the old year. Or maybe better.

Palm Beach County’s economy is expected to continue its strong growth, as the year wrapped up with a still-booming real estate market, combined with continued business growth in the area.

President Donald Trump’s part-time residence at his Mar-a-Lago mansion on Palm Beach has drawn attention to the county both as a business and tourist destination. But even prior to Trump’s January inauguration, the county already was flush with new hotel construction geared to the rise in tourism.

“The county’s newest hotel, the Hilton at the Palm Beach County Convention Center, had a strong first with 85 percent occupancy,” according to Ken Himmel, president of Related Urban, the hotel’s developer.

More hotels are under construction, including an Aloft Hotel in Delray Beach and a Canopy Hotel in West Palm Beach. Tourism wasn’t the county’s only booming field.

“The past 12 months saw growth in a variety of industries,” said Kelly Smallridge, president of the Business Development Board, the county’s business recruitment arm.

Among the companies growing are Bee Access, a scaffolding manufacturer in West Palm Beach; Jupiter-based Parametric Solutions, which engineers and makes gas turbine engines for aircraft and industrial power applications; and GeoGlobal Partners, which designs and makes pumps and valves in West Palm Beach.

“We’re one of the rare counties that has six to eight solid industries,” Smallridge said, ticking off manufacturing, equestrian, tourism, agribusiness, financial services, corporate headquarters and distribution and logistics.

Another growing area: Companies run by entrepreneurs. Moderning Medicine, a Boca Raton-based medical records firm and one of the fastest-growing technology companies in South Florida, said in 2017 it plans to hire 800 people, in addition to the more than 500 it already employs.

Helping boost more corporate growth in the coming year: The Brightline passenger train, slated to start regular service in the coming weeks.

“Companies already are saying they feel more comfortable opening offices in Palm Beach County because they know they can pull employees from Broward or Miami-Dade counties,” Smallridge said.

Of course, the biggest driver of Palm Beach County remains real estate. Growth, particularly in the housing market, was hot in 2017 and will remain so in 2018, experts say. This is despite the lengthy real estate boom that now is stretching into its eighth year.

Housing analyst Jack McCabe said he expected to see a market correction on the horizon, but he now thinks a slowdown will be delayed by the the tax legislation passed by Congress. The sweeping tax law limits deductions for state and local taxes.

“This is bad news for residents in such high-tax states as New Jersey and New York but good news for Florida, which has no state income tax and already is a destination for residents from the Northeast,” said McCabe, of McCabe Consulting in Deerfield Beach.

It’s not just the housing market that will get a boost from the tax bill, business leaders said.

“Executives already have been making inquiries about bringing their companies to Palm Beach County,” Smallridge said. “We’ve seen 20 plus calls over the last month. There’s already a steady stream of inquiries by companies seeking to relocate. Among them are corporate headquarters and financial services firms out of Manhattan, Boston, Greenwich and even Chicago. Tax attorneys in the Northeast are hard at work figuring out how to domicile companies in Florida.

If they consider moving companies, corporate leaders will find rental housing available but for-sale homes difficult to find. That’s because there’s been little new home construction during the past decade.

“Homeowners are staying in their homes longer, prompting a number of residents to remodel existing homes,” said Brad Hunter, chief economist of HomeAdvisor, which connects homeowners with local service professionals to complete home improvement or remodeling jobs.

Although new apartment complexes are cropping up throughout the county, many come with rents that can reach nearly $2,000 a month or more.

“It’s very tough for people to rent right now, and if they do, it’s hard to save up for any down payment for a home,” McCabe said.

Among the new apartment complexes that opened in 2017: The 400-unit Altis apartments in Boca Raton; the 205-unit apartment tower dubbed The Alexander in West Palm Beach. Other projects commenced construction, including the 315-unit Broadstone City Center and the 290-unit Park-Line in West Palm Beach, both of which are expected to attract renters who may use the Brightline train station nearby.

High land prices have made it difficult for home developers to find locations to build. Some are turning to infill sites, such as golf courses, for new homes, while others are looking west. In July, Minto Communities started construction on Westlake, a newly-created city set to contain 4,500 new homes. The city is off Seminole Pratt Whitney Road north of Okeechobee Boulevard.

Also in demand are new offices and industrial space. But both are hard to find, said Rebel Cook of Rebel Cook Real Estate and president of the Economic Forum, a business group.

“Industrial space, particularly small sizes, is virtually impossible to find, crimping growth by companies that want to expand their businesses here,” said Cook. “If you’re a growing company and you want to go from 5,000 to 10,000 square feet, I can’t find you anything here. This is the first time in 35 years of selling warehouses that I don’t have one warehouse for sale. Not one.”

New offices could be coming to West Palm Beach but not right away. In early 2018, The Related Cos. of New York is expected to propose construction of an urban-style office building next to CityPlace in West Palm Beach. In addition, billionaire Palm Beach investor Jeff Greene has pledged he will start construction on One West Palm, a twin-tower office/hotel/housing complex set for 550 Quadrille Blvd. in West Palm Beach.

 

Source: Palm Beach Post