Tag Archive for: logistics hubs

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Here Come The Next Waves Of Industrial Demand

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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

Another Big Year Expected For Industrial Real Estate In 2022 — But Development May Be Stymied By Supply Chain

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The U.S. industrial real estate market will continue to be on fire heading into 2022 but longer lead times to obtain construction materials and across-the-board price increases will also affect the sector.

Cushman & Wakefield PLC took a two-year look into the future, predicting industrial absorption from the start of 2022 to the end of 2023 will be 855 million square feet. Although demand will be high, and issues will make new industrial development challenging, Cushman expects new supply will slightly outpace demand in the next two years, which’ll help moderate the market somewhat.

Cushman is predicting new industrial deliveries will reach 932 million square feet in 2022 and 2023. E-commerce is a big reason — but not the only one — behind the warehouse sector’s massive growth since the pandemic. Online sales rose to 21.6% of total retail sales in the second quarter of 2020, compared to 16.2% in Q1 2020, and remain around 20% as of Q3 2021, according to CBRE Group Inc. (NYSE: CBRE) research.

“2021 was the best year ever for industrial real estate,” said James Breeze, senior director and global head of industrial and logistics research at CBRE, during a recent forecast call with reporters.

Third-party logistics have dominated industrial deal activity this year, a share that could grow in 2022 as costs continue to rise, and space and labor becomes more challenging to find.

“Many retailers or wholesalers will outsource their distribution to 3PLs at a greater clip in 2022,” Breeze said. “This outsourcing is going to be prevalent throughout the country.”

CBRE is forecasting vacancy rates next year for warehouses to remain at or even below 3.6% in 2022. Cushman is predicting industrial vacancy in North America will end 2023 at 4.1%. Expect rents to continue to rise for industrial occupiers, too. Cushman is forecasting average net asking rents for warehouse space in North America will reach a new high of $8.72 per square feet by the end of 2023.

“Even with the rental-rate hikes, tenants need warehouse space so much they’re willing to pay the new rates,” said Erik Foster, principal and head of industrial capital markets at Avison Young USA Inc.

“In fact, transportation costs are a bigger concern for many groups leasing warehouse space,” Breeze said.

Real estate costs are typically only 3% to 6% of total logistics costs, compared to 50% for transportation. The cost to ship goods via ocean freight grew more than 200% in 2021, while domestic-freight costs jumped more than 40%, according to CBRE.

 

“Leasing more space may actually save some occupiers money, if they are able to use additional facilities to cut down on domestic or international transportation,” Breeze added.

Investment activity for industrial real estate is expected to remain hot in 2022. Since the pandemic, some capital sources have pivoted away from uncertain asset classes, like retail and office, and instead poured money into industrial and multifamily, both of which have been on a tear in 2021.

Capitalization-rate compression across several U.S. markets has been observed in 2021 and is expected to continue, but cap-rate spreads between primary and secondary markets will be observed, CBRE predicts.

CBRE is predicting Phoenix and Las Vegas will post cap rates in line with the Inland Empire, about 3.1% in the first half of 2021, in 2022. Prices in the Pennsylvania Interstates 78/81 corridor are expected to be closer to those seen in New Jersey industrial markets, about 2.9% in H1 2021, says CBRE. Northern and central Florida could approach cap rates observed today in south Florida. Miami industrial real estate saw cap rates averaging 3.75% in H1 2021.

“With the amount of investor interest in industrial right now, there are some groups that don’t have much experience owning or operating warehouse real estate,” Foster said. “We’re seeing folks that are sophisticated, with real funds behind them, move in like never before to an asset class that they don’t know that well, which can cause risk.”

 

Source: SFBJ

Are Transload Facilities The Next Frontier In The Industrial Investment Race?

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The growing logistics industry has not only created insatiable demand for warehouse space, it has ramped up growth in the transportation industry, creating a need for modern truck terminals with high-volume flow-through facilities.

Commercial real estate investors are beginning to take notice and are allocating more of their money to this niche sector.

“Historically, investors in truck terminals were large trucking companies that wanted to own their own facilities, like Old Dominion ABF, SAIA, R&L, Carriers, Central Transport and ESTES,” says Dean Brody, executive managing director and specialist in this investment area with real estate services firm JLL.

Today, this sub-sector is attracting big institutional investors and industrial real estate developers/investors. These include Centerpoint, Realterm Logistics, Terreno Realty, Brookfield, Duke Realty, Prologis, Stonemont, Altera, JP Morgan and others that have recently entered this market. Speculative development may not be far behind.

For example, in April, Chicago-based Dayton Street Partners acquired a 17,897-sq.-ft. truck terminal near Tampa International Airport in Florida from a private investor for an undisclosed price. The property is 100 percent leased to ABF Freight.

“This was a great opportunity to capitalize on increasing demand in the market and is part of a larger corporate strategy to invest in well-located, logistics-related real estate assets in Florida and throughout the U.S.,” said DSP Principal Michael Schack in a statement.

Integrated Service Provider (ISP) facilities are essential to supply chain efficiencies, Brody notes. Amid higher transportation costs and driver shortages, the need for them has been growing over the pst 15 years.

“The e-commerce boom has accelerated demand for those facilities by multiples,” Brody says.

“The purpose for these buildings is either redirecting cargo mode—usually from container to truckload—or consolidating and redirecting freight direction and what freight rides together,” according to John Morris, executive managing director and Americas industrial and logistics leader with real estate services firm CBRE.

De-containerizing cargo and transloading it onto trucks or rail cars facilitates logistics efficiencies, according to Brody. He explains, for example, that cargo from three 40-foot containers can fit into two 53-foot truck trailers, and it is more cost-effective for those trucks to deliver the cargo than directly transporting it over 50 miles to the final destination because the empty containers then must be returned to the origination point.

Markets that see the heaviest cargo movements have the highest demand for these functionalities, Morris notes. For example, there is a significant density of transload buildings in Southern California’s Inland Empire, where cargo is often moved from the ports of Los Angeles or Long Beach, Calif. because it costs less to de-containerize it there than closer to the ports.

“Containers coming in from China are dray-moved to these buildings, de-containerized into different trucks or rail cars and moved out to mostly points further east from there,” Morris says.

The fee revenue models for these facilities are similar to any real estate tenancy—users typically own or lease them, according to Morris. However, many are also third-party facilities, where users are charged through a 3PL arrangement that is a blend of fixed and variable costs. Brody notes that pricing is on a per-door, per-month triple-net basis.

ISPs are located in logistics hubs all over the country. Those near intermodal facilities and ports will have transload options, Brody says, noting that terminals in infill locations in places like Northern New Jersey, New York City outer boroughs, Chicago, Seattle, the San Francisco Bay area, Los Angeles and the Inland Empire are achieving the highest rents.

ISP property values are dependent on location, but cap rates on these assets tend to be on average 1.5 percent higher than those for class-A warehouse properties, according to Brody. He notes that the spread is narrowing in core markets, where cap rates on ISP assets are now only 50 basis points to 100 basis points higher than for a warehouse, or might even be the same.

While returns on investment for ISP facilities are lower than those for warehouse properties, Morris says that they are marginally less expensive to develop, as transloading buildings do not require much clear height, and their structures typically do not need to support heavy automation. Such buildings also have lower coverage ratios, typically about one-tenth of the site, but they do require a lot of land to accommodate the higher number of axles travelling in and out than a traditional warehouse does.

“ISPs, which are basically concrete yards with a transloading facility, haven’t changed much over the last 50 years, except modern facilities have 100-foot dock doors as opposed to 70 to 90-foot doors found in older facilities, to provide greater flexibility in movement,” Brody says.

Cities generally don’t allow the development of ISP facilities near large population centers, as they have several negative aspects: they are aesthetically unattractive and inherently involve heavy truck traffic and significant CO2 emissions. Therefore, Brody notes that there is tremendous value in land already zoned for ISPs.

Despite high demand for these facilities, they have traditionally been developed on a build-to-suit basis for single-tenant users, such as large Fortune 100 retailers or third-party logistics providers, including Fedex, UPS, XPO and National Retail Systems. But going forward, Brody expects that spec developers will soon begin capitalizing on the growing need for ISP buildings.

 

Source: Wealth Management

Expert Roundup: Brokers Discuss Industrial Real Estate

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Since the pandemic started affecting the U.S. economy last March, industrial real estate has proven to be the bright point in an otherwise challenging real estate market.

As part of CommercialCafe‘s Expert Roundup series, a number of commercial real estate experts from across the country give their takes on why the industrial asset class is so resilient, what challenges it still faces, what the near- to mid-future has in store and even break it down to a regional perspective.

Industrial construction projects in the U.S. are projected to eclipse 342 million square feet in 2021 – the highest in five years. What are the main drivers of this expansion?

Grigoriy Azayev

“The main drivers of the accelerated expansion we see in industrial construction projects in the U.S. and abroad are the following:

Due to stay-at-home orders and lockdowns throughout the U.S.,people had no choice but to shop online for household products, clothing,equipment, and food. The e-commerce and last-mile delivery trend has beenemerging rapidly for the last five years, but the pandemic accelerated growth and demand to numbers and targets that no one in the industry expected to see until 2030 (ratio of online sales vs. in-person retail shopping and dollar amountsspent online in purchases).

But the writing was on the wall for quite sometime pre COVID 19..The retail experience has changed dramatically in the last 10 years, and year-over-year,less Americans go to physical brick and mortar stores for everyday consumer goods. Instead, they’re opting for online platforms which have been improving their ease of use, variety of products, and most importantly: delivery speed. It doesn’t pay to get in the car and drive 30 minutes to the store, walk around the store for an hour putting your goods in the cart, and then driving backhome, if for the same price, I can click a few buttons and have all my goods delivered – sometimes as quickly as 2 hours.” 

Steve Buss

“Right now, three major factors are driving industrial demand — the rise of e-commerce; manufacturing growth due to reshoring; and supply-chain diversification. All three were accelerated due to the pandemic..

E-commerce was a huge driver of industrial real estate expansion before the pandemic and — after a short pause initially in 2020 — it’s only expanded in cities of all sizes.

Industrial real estate demand is a natural reaction of the marketplace, which has doubled down on online sales — not just business to consumer, but also B to B. Corporations are expanding how much they’re willing to buy via e-commerce just like household consumers.

We’re living in a world where competitive delivery pressure is ratcheting up every day. Everyone needs to find warehouse space to help them deliver goods to their customers. They want to offer expedited delivery and develop last-mile e-commerce supply chains to compete against giants like Amazon.

Fulfillment and third-party logistics companies are increasingly in need of distribution centers within a short distance of urban and suburban areas. That’s not going to change. Demand is only going to grow, especially in secondary and tertiary markets. In-fill industrial — as well as new construction — will continue to grow in 2021.

Will Curtis

“The biggest things that has driven the growth in industrial is online shopping and the changes in the consumer purchase process. Between delivery driving the need to last-mile distribution to the click and pick up has increased the need for warehouse space for retailers.

The other thing that is adding to this trend is the move to suburban office space and looking at flex properties to combat COVID concerns like shared common areas, elevators or shared HVAC systems. Flex buildings have the ability to mitigate those issues and have driven the demand for more industrial demand.”

Fletcher Dilmore

“One of the main drivers of this expansion is that traditional big box retailers are conceding market share to online retailers, creating increased demand for industrial warehouse and fulfillment space from these growing online retailers who do not have a traditional physical presence.”

Michael Edwards

“Construction on industrial projects is booming, because we’ve seen consistently that despite periods of economic uncertainty or even crisis, industrial properties tend to remain stable. This means consistent cash flow and reliable investment growth. Industrial may not be the sexiest part of the real estate industry, but it might be the steadiest right now.

Additionally, sectors like e-commerce, data centers, and self-storage have recently seen higher-than-normal demand, and low supply. The onset of the COVID-19 pandemic accelerated the need for infrastructure to support these industries.”

Max Levinston

“Industrial was already growing at a fast pace before Covid, and this pandemic has accelerated many of these trends. In our market warehouse space either for sale or lease is quickly absorbed, both by investors and owner users.”

Bruce Lowry

“In our experience, the drivers in construction has two main drivers, (1) increased demand for warehouse space in general and (2) the lack of modern industrial and warehouse space. Increased demand for industrial warehouse space has significantly increased over the past several years as consumers have increasingly changed their purchasing habits from brick and mortar in person purchases to online orders with door step delivery. The global pandemic has increased this demand for door step delivery of online goods and services including perishable goods such as groceries.

Older consumers were forced to learn new technology and they are learning that they like the convenience of door step delivery. In turn, this increased demand for online ordering and door step delivery has increased the demand for both large warehouse projects and so called last mile warehouse space.

Secondly, outdated building infrastructure including lack of access to technological innovations such as communication and data infrastructure, buildings designed for automated sorting and delivery systems are increasing demand for newly constructed warehouse and manufacturing space. Buildings with narrow spans containing repetitive floor to ceiling support structures simply will not accommodate modern automated manufacturing and warehouse logistics systems and these buildings are being replaced with structures that contain these innovations.”

Bryan Shaffer

“E-commerce sales was growing before the pandemic, but the crisis accelerated this trend, with consumers unable to obtain goods from some retailers. Further, it was harder for manufacturers and sellers to get their goods to the market therefore many small suppliers have partnered with Amazon to keep their distribution line open. Overall, year over year industrial values increased 8.1% from February 2020 to February 2021, more than any commercial real estate asset class. The E-commerce sales resulted in much stronger demand for logistics and more demand for cold storage space.”

 

Industrial real estate has fared better that other asset classes in the last year. How has 2020 affected the industrial market this year and beyond?

Grigoriy Azayev

“The industrial market in 2020 has become the sweetheart ofCRE. Everyone is chasing industrial deals and some of the biggest players inother asset types are jumping ship to bid on industrial deals. Unfortunately,it is creating a supply shortage in the market throughout the country, and prices for both leases and investments are on the rise. I don’t see this trend slowingdown because companies like Amazon have publicly stated they want to doubletheir square footage in the next year and are paying top dollar for class A industrial space and land. Regrettably, it’s weeding out the little guys and small-to-mid-size businesses that also rely on supply chains and logistical real estate.”

Steve Buss

“Another huge factor driving demand for industrial real estate is a much greater awareness of supply chain risk, which was exposed due to the pandemic shutdowns. Shortages of all types of goods revealed just how tight supply chains were for many sectors. For example, some U.S. automakers weren’t able to operate because they couldn’t get onboard computer chips. That led to sustained automotive inventory shortages. Until the pandemic, that was an unseen or under-rated risk in the supply chain. Now, it’s impossible to ignore such risks. Businesses are diversifying those supply chains and rethinking how they manage risk, including where they want to store finished goods.

While it’s typically more profitable to run a really tight supply chain, businesses faced a rude awakening and discovered it’s also much riskier. Businesses and their customers found they were taking on far more risk than they realized by holding very little inventory. They weren’t ready to handle the supply chain disruption. Now, they’re asking how much more inventory they should have on hand to make it through the next supply disruption.”

Will Curtis

“Certainly of returns is always going to drive investments. With large players like Amazon, Walmart, and others that they need additional warehouse space has added to the investment-grade properties and brought in more demand.”

Fletcher Dilmore

“2020 has made industrial real estate an essential asset class. Distribution and warehousing went from being apart of everyday business to being the everyday business. Had it not been for the pandemic, I think it is safe to say we would not have seen as quick of an adaptation of online grocery shopping, something that had been available, but was a minuscule amount of overall grocery sales in previous years. ”

Michael Edwards

“2020 was quite a year – and it was fascinating to see the shifts in the real estate industry. In commercial real estate in general, most markets saw a decline in demand – but industrial saw a significant increase in growth and investment. We anticipate that investors will be eyeing industrial properties favorably in the months ahead.

Part of the reason for this growth in industrial investment is the consumer behaviors that accelerated e-commerce and data centers when the pandemic rocked our worlds last year. Grandparents who’d never ordered anything online before were suddenly getting groceries delivered and medications shipped and birthday gifts sent directly to their kids and grandkids from fulfilment centers. We expect this trend to continue, so demand will remain for the industrial properties needed to support those activities.”

Max Levinston

“Online shopping has been a huge reason for the increased demand. Many of these shifts in consumer shopping will not revert back once we’re further out of this pandemic..” 

Bruce Lowry

“The industrial and warehouse real estate market is strong and the demand for new industrial and warehouse properties across all sectors will continue as companies innovate and automate their manufacturing, logistics and delivery programs. We see only increases in this sector for the foreseeable future due to high consumer demand for e-commerce goods and the need to continue to automate manufacturing facilities.”

Bryan Shaffer

“The pandemic forced people to adapt to E-commerce. It likely pushed forward the market in the US by 5-10 years. People who were possibly thinking of looking at eCommerce were forced to utilize it during the pandemic to receive their needed supplies and services. In addition to industrial logistics demand, the vaccine also created more cold storage space. New technology has also developed quicker because of additional capital being invested in this space.”

 

Are there any other use-types besides e-commerce and cold storage that you see expanding more in the future?

Grigoriy Azayev

“We’re starting to see some secondary uses come into play,such as fleet parking for delivery providers and there has is a growing demand for movie studios and film production campuses in New York City. This is due to some excellent tax incentive programs for film production here and tremendous demand growth for instant and fresh content. There is also movement in the smaller “maker spaces” and manufacturers here in New York and other cities. The costs of shipping andoutsourced manufacturing on the rise, paired with long delays of production due to COVID-19, the cost of manufacturing in the U.S has become comparable to outsourcing due to a growing supply chain. It has become more and more seamless and cost-effective to manufacture all types of goods here in the states.”

Steve Buss

“Another issue that will drive industrial real estate in the years to come is reshoring or bringing manufacturing operations back to the U.S. Because of the pandemic supply chain issues, some companies are less convinced they want all their goods coming from one country like China if they can find local alternatives.”

Will Curtis

“In San Antonio, we are seeing a huge push for Cyber Security. Flex space is showing as a great cost-effective option compared to traditional office buildings. Cyber Security SCIF (Sensitive Compartmentalized Infrastrcture) is expensive to build out and flex gives a lower-cost option. Things like Port San Antonio has been a huge driver for the growth in San Antonio.”

Fletcher Dilmore

“I have seen an increase in demand in my local market for smaller flex space by tenants that have a specialized manufacturing or business specific needs.”

Michael Edwards

“Data centers, undoubtedly, will continue to grow in importance and their needs will evolve along with the technology that’s stored inside them. We’ve also seen self-storage grow over the past few years as a result of more people moving to smaller homes in urban settings. And, self-storage is a sector that tends to resist the overall trends during economic slowdowns – including this COVID-related one. More people than ever before are “working from wherever”, which means they can put their things in storage and hit the road.”

Max Levinston

“Self-storage and flex spaces.. Many investors are targeting the lucrative nature of self-storage, both industrial conversions and new construction. Flex space is also highly desirable for companies who need a few offices/conference room for staff which is connected to the warehouse.”

Bruce Lowry

“Self-storage and flex spaces.. Many investors are targeting the lucrative nature of self-storage, both industrial conversions and new construction. Flex space is also highly desirable for companies who need a few offices/conference room for staff which is connected to the warehouse.”

Bryan Shaffer

“Industrial overall is very affordable to build. Over time I expect to see an over-supply. This usually happens with real estate asset classes after they become over heated. I believe that e-commerce will drive more activity and offer a hybrid space between industrial and retail and logistics space will be incorporated into current retail properties. Walmart is an example of a brand where we are seeing this trend now.

The other likely impact on industrial will be the emergence of more food service, commercial kitchens, located within industrial properties, which will service the food delivery companies.”

 

What’s the #1 challenge industrial is facing in 2021?

Grigoriy Azayev

“The biggest issue that industrial real estate faces is beinga follower of the market rather than the leader. It’s great that Amazon candeliver my package to me in under 2 hours here in NYC from one of their manyfacilities, but if workers don’t return to the office and come back to living in the city, to who will they be delivering these packages? At the height ofthe pandemic, vacancy rates in NYC for residential buildings touched 25%, and to-date,offices are still at 15% occupancy. These huge investments into last-miledelivery will be a tremendous loss if the theme continues and people don’treturn back to NYC.

The second issue is more industrial real estate leads tomore air, water and noise pollution, and a substantial increase intraffic. In NYC, there is scarce industrial space and they depend on only a fewmajor roads that trucks can go on to reach the facilities. There are more andmore trucks and vans on the road, causing ridiculous traffic, and it’s alreadybecome an ongoing concern in the city.”

Steve Buss

“Industrial real estate is one of the few big winners of the pandemic. We see enormous investment potential in industrial properties due to the expansion of e-commerce and the growing demand for warehouse space. We’re expecting growth not just in big cities, but also in secondary markets, particularly in the Midwest.

For tenants looking for industrial properties to lease, it’s very competitive. It’s hard to find space. Due to high demand, industrial rents are going up. When tenants get ready to renew their leases, they’re getting sticker shock. They’re not used to that. That all means, of course, that industrial real estate is a particularly sound investment.

While many bigger box distribution centers are going up in the biggest markets, we see huge potential for developing or building smaller industrial properties closer to urban centers in secondary and even some tertiary markets. You can find 20-, 30- and 40-year-old buildings in excellent locations and make them very functional for multiple tenants. If you stay near urban centers, you can deliver last-mile supply chain accessibility, but also access to workers.”

Will Curtis

“Lack of inventory and pricing smaller users out of the market. I am working with a client now, who is more price-sensitive and we simply can not find space and the few things we do find are more expensive than what can be unwritten into the business plan.”

Fletcher Dilmore

“Keeping up with demand with functional product. Industrial has been the safe haven for real estate investors during COVID, but that doesn’t mean all industrial product is created equal or as equally valuable. There are many industrial buildings across the U.S. that are for practical purposes functionally obsolete. This can be because of low ceiling height, inadequate power supply, difficulty moving trucks in and out, lack of proper sprinkler systems, distance from major transportation arteries, etc.”

Michael Edwards

“We feel really optimistic that challenges will be few for industrial properties this year, at least relative to the opportunities in this part of commercial real estate. But it will be interesting to see how many people miss shopping in brick and mortar stores or having face-to-face interactions, cutting into the growth of e-commerce. We don’t expect that to happen, but it’s something industrial investors should be looking at.”

Max Levinston

“Supply, the availability is between 1 – 2% right now for quality industrial space, both for lease and for sale.

Developers cannot keep up with the demand which has also caused the prices of industrial land to go up as well. We’re seeing the prices/sq ft go up and some buildings getting leased before construction is completed.”

Bryan Shaffer

“Developers will race to add more industrial and flex inventory to the market because of the lower cost compared to other types of real estate and the current low vacancy rates. At the same time, overall changes in the retail market caused by e-commerce, will lead to more repurposing of existing better located retail properties into some type of hybrid distribution/ retail projects. Both factors together can lead to oversupply in some markets. Markets with higher land cost and more limited development opportunities will out preform markets with unlimited expansion potential. The long-term need is going to be for better located properties closer to shipping and population centers This will ensure that products can be delivered quicker. For 2021, I believe industrial will overall remain very strong, but the new growth in development may hurt the asset class in the future.”

 

Source: CommercialCafe

Golf Courses Reborn As Warehouse Centers In E-Commerce Rush

Aerial photograph of forest and golf course with lake

The pandemic-driven surge in demand for e-commerce has attracted warehouse developers to an unlikely business prospect: turning old golf courses into distribution centers.

Since the mid-2000s, golf has been suffering from fewer players and more course closures. The pandemic has giving the sport a boost because it offers both outdoor entertainment and social distancing. But as other leisure activities resume, many expect the sport’s headwinds to pick up again.

That’s caught the attention of investors seeking to cash in on the warehouse boom. In New York, Tennessee, Pennsylvania and other states,warehouses are rising on parcels of land formerly occupied by golf courses. And among the tenants developers have drawn to these sites are Amazon and UPS.

Online shopping during the pandemic has made warehouses one of the hottest corners of commercial real estate. The industrial market had its strongest year on record in 2020, and big money managers like Blackstone, Cerberus and KKR have all snapped up logistics centers since last March.

“Finally our asset class is the most popular in the world,” says Jack Fraker, head of industrial investments for CBRE.

Still, converting a golf course to a warehouse is no chip shot. Developers often have to contend with the rezoning process and the ire of nearby residents who oppose the increased traffic and noise.

But it can be tough for local leaders to say no when Amazon offers millions in investment and hundreds of jobs. In May, Onondaga County in New York announced the e-commerce giant would build a $350 million, 3.8-million-square-foot distribution center on land formerly occupied by a golf course in the town of Clay.

“With golf you’re just limited to the income of the ongoing business concern,” says Keith Cubba, national director of Colliers’ Golf Course Advisory Services. “There’s going to be a much higher yield on 200 acres of residential or commercial.”

 

Source: Bloomberg

25% Of U.S. Malls Are Expected To Shut Within 5 Years. Giving Them A New Life Won’t Be Easy

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What is going to happen to America’s dead malls? That’s a million-dollar question plaguing retailers and real estate developers.

With a report circulating earlier this month that the biggest U.S. mall owner Simon Property Group has been in talks with Amazon to convert some shuttered Sears and J.C. Penney department stores into fulfillment centers, many industry analysts have been pontificating on the future of malls as logistics hubs.

The consensus seems to be that turning old retail space into new warehouses might not be so easy, even though it might seem like a logical solution. Demand for logistics buildings is skyrocketing as e-commerce sales balloon. But the hurdles include the need to have properties rezoned, which could be met with pushback from local municipalities.

“Just because retail space has gone vacant or remained fallow does not mean that it is automatically a good candidate for repurposing into industrial space,” the head of Moody’s Analytics commercial real estate economics division, Victor Calanog, said in a report just released. “One cannot simply build industrial buildings in areas zoned for commercial use. Often, that requires rezoning areas — a long and tedious process with a low probability of success. State and local governments typically tax industrial properties at anywhere from half to two-thirds the rate of commercial properties, so municipalities have little incentive to rezone areas from commercial to industrial use, as they will collect less tax revenues.”

Demand for various commercial real estate asset types is expected to shift noticeably because of the coronavirus pandemic, with more people now working from home, flocking to the suburbs for space and buying online things they used to browse for in stores.

According to data pulled by Moody’s Analytics REIS, apartment development in the U.S. is expected to be down 15.6% in a post-Covid-19 world. Office development is set to drop 10%, it said, while retail falls 15.7%. Industrial development, meantime, is expected to pick up 3.6%.

The firm did find five markets where it said it would make the most sense to covert vacant retail space into warehouse space, based on where retail has been underperforming and where warehouse demand is hot. Those are: Central New Jersey, Northern New Jersey, Long Island, Memphis and Detroit.

But shopping malls are likely going to be shuttering in suburbs all across the country, as store closures grow in number and landlords capitulate. Another new report out this week from Coresight Research estimates 25% of America’s roughly 1,000 malls will close over the next three to five years, with the pandemic accelerating a demise that was already underway before the new virus emerged.

The malls most at risk of going dark are classified as so-called B-, C- and D-rated malls, meaning they bring in fewer sales per square foot than an A mall. An A++ mall could bring in as much as $1,000 in sales per square foot, for example, while a C+ mall does about $320. There are roughly 380 C- and D-rated malls in the U.S., according to an analysis by the commercial real estate firm Green Street Advisors. It has said malls rated C and below “are not viable retail centers long term.”

CBL & Associates, a Tennessee-based mall owner that has a number of B- and C-rated malls in its portfolio, has said it plans to file for bankruptcy by Oct. 1, highlighting just how much pressure these landlords are facing. Even high-end malls are under pressure, though. No one is really immune. An upscale mall owner in Miami, Bal Harbour Shops, is currently moving to evict the luxury department store chain Saks Fifth Avenue for not paying rent since mid-March. It owes Bal Harbour roughly $1.9 million, according to court documents.

“Despite being given months to honor its past due rental obligations and despite Saks’ impressive post-COVID sales at Bal Harbour Shops, Saks steadfastly refused to make any effort to pay any part of its rent,” Bal Harbour Shops President and Chief Executive Matthew Whitman Lazenby said in a statement. “Bal Harbour Shops has worked tirelessly to ensure our business and our tenants can survive and thrive in this environment. Regrettably, this injudicious behavior has left us with no other option than to terminate the Saks lease and sue to evict Saks from Bal Harbour Shops.”

A representative from Hudson’s Bay-owned Saks was not immediately available to comment.

About 90% of occupants in U.S. malls are either experiential tenants like movie theaters, or department store chains and apparel retailers, according to the Coresight analysis. This makes malls the most vulnerable type of shopping centers to the Covid-19 impact, it said, compared with other properties like strip centers that have grocery stores and outlet centers that offer consumers bargains.

During the pandemic, movie theaters and clothing shops have faced long windows of being closed, while consumers could still flock to strip centers for food, cleaning products and other essentials. In some states, such as New York and California, movie theaters remain closed to this day. And so with minimal revenue coming in, these are the businesses that are most likely requesting rent reductions, or not paying rent at all.

Mall developers had up until now been courting entertainment companies like Dave & Buster’s and iFly indoor skydiving, and restaurants like Cheesecake Factory, to lessen their dependence on shrinking retailers. But those businesses have also not fared well in an age of social distancing.

So, if not warehouses and entertainment complexes, analysts have pondered other potential use cases for so-called dead malls: Churches, medical facilities, office spaces and even apartment complexes.

But even office space is a risky bet now, as the working-from-home trend could become permanent for some. Workers in JPMorgan Chase’s corporate and investment bank, for example, will cycle between days spent at the office and at home, keeping the ability to work remotely on a part-time basis. The world’s biggest Wall Street bank by revenue has said it could shutter backup trading floors located outside New York and London as a result of the move.

The outdoor retailer REI is also looking to sell its recently completed corporate campus in suburban Seattle, shifting instead to more satellite offices, as a result of the pandemic.

“Unfortunately, this whole Covid thing has thrown the experiential pitch out the window,” Moody’s Calanog said in a phone interview. “Until we resolve this pandemic, I suspect we are going to be in a holding pattern with hollow retail space. Then we will see what the most viable format is.”

View the CNBC news video ‘How Shrinking the American Mall Will Impact Local Tax Revenue‘ below.

Source: CNBC

Tracking E-Commerce To A Career In Industrial Real Estate Brokerage

Doubts of growing your retail brick-and-mortar clientele have you reaching for antacid from the bubble wrap parcel on your porch?

Don’t post a “closed” sign on your commercial real estate journey. Instead, consider pivoting to 32-foot clear heights and secured trailer parking.

E-commerce keeps growing. In 2017, U.S. online retail sales increased 16% year-over-year, up four out of five years running, and yielded $453.5 billion in total sales, according to CBRE.  Of the 50 largest industrial leases finalized last year, approximately 43% involved e-commerce companies.

For some, specializing in industrial brokerage may be the way forward. Experts see the logistics real estate market as early stage.UBS forecasts the pace of change in e-commerce is expected to accelerate market-share transfer, from in-store retail sales to online, driven by quicker-than-expected adoption of mobile from consumers.

Speaking to the crowd at I.CON ’18 in June in Jersey City, the Senior Managing Director with Crow Holdings Industrial Clark Machemer put it, “Today’s warehouse industry is the logistics business.”

Now may be time to synchronize your industrial sales and leasing future, as demand is up for real estate along the rapid throughput supply chain. CBRE calculated that for an incremental $1 billion growth in e-commerce sales, an additional 1.25 million square feet of distribution space is needed to service the growth. NAIOP, the Commercial Real Estate Development Association, cited Forrester’s forecast where U.S. e-commerce sales will rise 9.3% annually over the next 5 years to top $523 billion.

Media interest in e-commerce has added foot-candle on the interrelationship of goods fulfillment factors and real estate. Of course, there’s the Amazon HQ2 bonanza. Over in home improvement, Home Depot is gearing up to spend $1.2 billion across five years on 170 distribution facilities to access “90% of the U.S. population in one day or less.”

In this unfolding era of omni-channel retailing, industrial pros know expanding the supply of new construction and repurposing obsolete facilities is about satisfying the space race. Site selection for first mile, middle mile and last mile facilities won’t just affect industrial parks. Inner cities are in play. It’s about population. Many e-commerce companies and third-party logistics providers want a perch near densely-packed rooftops of consumers.

Earning Their Business

With e-commerce projected as a growth driver over the next five years for both the U.S. economy and development of facilities, what imperatives should e-commerce clients expect from their industrial real estate brokers?

“E-commerce clients expect a level of sophistication from the industrial brokerage business that didn’t exist 10 years ago,” says William Waxman, executive vice president at CBRE.

Waxman is an authority on corporate, industrial and supply chain real estate. In 2017, he was awarded NAIOP New Jersey’s Industrial Deal of the Year for Blue Apron’s 495,000-square-foot lease.

“My e-commerce clients expect me to have a comprehensive understanding of what they’re doing,” Waxman says. “Not just an understanding of their business, but an understanding of their values. And to respect their values, and to make sure the developments, the facilities are respectful of their values, as well.”

Waxman, who also was a speaker at I.CON ’18, is well regarded for maintaining relationships.

“E-commerce clients especially want to know they have a trusted advisor in their industrial broker. They want to know everything will get done at a very high level. From a tertiary environment to a primary environment, the quality of the work will be the same no matter where the properties are located,” said Waxman.

Representing In A Disruptive Age

Whether you’re already growing your book of business or shifting careers, specializing in logistics real estate on property types that support e-commerce may be your next thing.

“It’s the kind of industry you just need to be passionate about,” Waxman says. “When your clients have a pain point, you must have a solution for them.”

Waxman observes clients in e-commerce desire collaboration, and hire a multitude of service providers on deals, so they expect connections from the broker.

“You’ve got to know the right experts, as a service of building-out their project teams,” Waxman advises. “My e-commerce and tech clients want me to recognize through cost-benefit analysis whether they would benefit from a particular economic incentives package, or benefit from an in-depth labor analysis. Don’t be transactional brokers. Be a resource. You’re working for their best interest. Whether you’re onsite at a trucking company, or in a Fortune 200 board room, show how you’ll save them money. It goes to their bottom line.”

Even though Waxman leads CBRE‘s world renowned Port and Integrated Logistics Practice, he doesn’t forget to pound pavement.

“Old-fashioned shoe leather – there’s nothing wrong with that,” say Waxman.

 

Source: Forbes

Developers Could Lease Port Land For New Logistics Center

A team of developers have proposed a ground lease at Port Everglades for the construction of a logistics warehouse.

Port Everglades International Logistics Center LLC could build a warehouse of about 250,000 square feet with an attached office building on a 16.7-acre site west of McIntosh Road. The developer is a joint venture between International Warehouse Services (IWS), and ANF Group and Treadwell Franklin Infrastructure Capital.

Port Everglades has handled more than 1 million TEUs (20-foot equivalent units) for two consecutive years, although volume declined 2 percent for the fiscal year ended Sept. 30, 2016. Still, it handled more containers than any port in Florida. The port is pursuing expansion plans, including dredging to deepen and widen its shipping channels and the lengthening of a turn-around area to permit five new cargo berths.

All of that should lead to more demand for cargo warehousing at Port Everglades. IWS is already the largest tenant in the port’s foreign trade zone (FTZ). The developer submitted an unsolicited proposal to Broward County in May. On Nov. 29, the county commission will vote on whether to bypass a process to consider other offers and set up public hearings on Dec. 13 and Jan. 10 to discuss the deal.

The site development costs are estimated at $2.5 million. Under the deal, the developer must build an office for the FTZ operator at no cost to the county over the duration of the lease. The facility would also have some refrigerated warehousing.

Port Everglades International Logistics Center has proposed a 30-year ground lease with the option for a 20-year extension. It would pay the county $22.96 million in total over the 30 years, but the county would pay the developer $3 million once it receives a temporary certificate of occupancy (TCO) for the building.

The developer’s lease payments to the county would start as soon as it secures the TCO. The payment in both years one and two would be $108,836, increase to $217,674 in years three and four, increase to $435,348 in year five and then reach $580,103 in year six. From there, the lease rate would grow 3.25 percent per year.

Construction of the building is estimated to take 27 months, with completion in April 2019. Once the new warehouse is complete, the county plans to demolish the old FTZ warehouse and replace it with additional marine terminal yards, according to a county memo.

 

Source: SFBJ