Industrial News: Shipping Costs and Blackstone Buys Big

Industrial News: Shipping Costs and Blackstone Buys Big

August 2019 News Update

What’s Happening in the Commercial Real Estate Sector?

Shipping Costs Rule the Day:

The cost of shipping goods via truck is coming down, making it more comparable to shipping by train, according to a recent savings index by the Journal of Commerce (JOC). As C-Suite executives focus on paring down transportation costs, this could have an impact on decisions to use intermodals versus trucking to increase efficiency. See this Connect Media story for more.

Dallas Development Boom Continues

A new development boom continues in Dallas as AllianceTexas developer Hillwood plans to build two new speculative industrial buildings in Fort Worth and Northlake. The 810,000 sf building and 460,000 sf building are part of a 2600-acre master-planned industrial park. There are no signs of slowing in this hot Southwest industrial market. See this Bisnow story for more.

Blackstone Group Buys Big in New York City

The Blackstone Group is negotiating the purchase of a portfolio of 11 buildings near JFK Airport from TA Realty, according to Crain’s New York. This follows news that Amazon is looking for millions of square feet of infill space to tap into last mile customers.

 

Amazon Expands in Atlanta

July 2019

Here’s a list of recent news around the country:

Amazon recently confirmed that it will open a new 700,000 square foot fulfillment center just outside of Atlanta in Gwinnett County. This shows the increasing popularity of the Atlanta industrial market, which is among the top 5 markets in the U.S. for new construction. Click for more on Amazon.

Blackstone affiliate Link Industrial Properties closed on its acquisition of an 8.8 acre site in Medley, FL. The property, on the far western edge of Miami-Dade County, should be idea for a new development to support demand in the tight Miami industrial market.  Link Industrial Properties was part of Gramercy Property Trust, which was purchased by Blackstone in 2018. Find out more from The Real Deal. 

Port Activity Continues to Dominate Industrial

Connection to major US ports continues to drive many investment deals, such as this one by CenterPoint Properties. The firm acquired a 3.5-acre rectilinear concert yard in Compton, CA. that offers proximity to major freeways as well as ports of Los Angeles and Long Beach. The yard’s shape and size allows high efficiency for storing equipment and using it to boost product throughput in the southern California industrial market.

Real Capital Markets Office Report: Investors Watching Coworking Impact

June 2019

Real Capital Markets Report: Office Investment Still Steady

Investors Move Outside Urban Core; Coworking a Risk to Investment Values

At the halfway point of 2019, many investors remain cautiously optimistic about office investment activity, predicting that it will remain consistent into 2020. Real Capital Markets’ Mid-Year Office Investor Sentiment Report also noted cautions about the growth of coworking space. Will it impact investment values, particularly in the event of a market downturn?

As noted in this story by Commercial Property Executive, a vast majority (87%) of RCM survey respondents said coworking was a moderate to high risk to investment values. Of that total, 37% said the market could be saturated. Investors are watching this segment, given its rapid expansion and exposure to any market downturn.

The report also noted:

  • Value add is a big draw for investors — Survey participants were feeling positive about value-add assets in suburban markets, especially those with easy access to cities and highways and near communities with good schools. Some investors said that location was more important than building quality. Suburban assets and those in secondary markets were seen as a good relative value when compared with trophy assets, where pricing was higher.
  • Coworking is helping the market by pushing vacancies down, creating an incubator mindset where larger owners can help grow relationships. It is also opening the way for further disruption in office leasing, where quicker, less expensive leasing becomes more of the norm.
  • Operational challenges, including the cost of tenant improvements, are a concern. Tenant improvement costs in some markets, for example, have jumped to $110 per square foot from $60 to $80 per square foot.
Industrial Real Estate Update

Industrial Real Estate Update

March 8, 2019

Industrial Real Estate Still Strong Following HQ2 Decision

Charlotte, Houston, and Salt Lake City may have been cut from the short list of HQ2 locations by Amazon, but they are still performing strong from the industrial real estate side — and are on Amazon’s watchful eye. Amazon has invested in 800,000-square-foot distribution centers in Houston and Salt Lake City, and all three markets continue to attract attention from investors, according to a recent Forbes article.

Ecommerce, Cold Storage and Institutions Dominate Industrial

REITs could outperform expectations this year in several asset classes, including industrial, according to Globe Street.  Continued demand for e-commerce space,  attractive pricing in cold storage, and continued attention from institutional investors could lower cap rates and keep conditions favorable for landlords.

The market has also been tough on senior housing, due to above-average supply added to the market in recent years. The construction pipeline is moderating, however. This sector does farce ongoing  pressures from higher labor costs.

Kroger Plans Industrial Distribution Centers in Florida, Mid-Atlantic

Grocery store chain Kroger plans to build two new distribution centers in Florida and the Mid Atlantic because of the demand from ecommerce customers who are looking for grocery delivery, says a recent article in the Dayton Daily News. These will be in addition to the 20 fulfillment centers, or “sheds” that the chain will invest in to speed up deliveries through the use of technology and robotics.

 

Top Trends Shaping Food Related Industrial Space

Feb. 20, 2019

Avison Young Report: Online Grocery, Cold Storage, among Top 5 Trends Shaping Food Related Industrial Space

The expanding market for food that is fresh, organic, or packaged for convenience continues to drive demand for industrial space. This is particularly true in the Midwest, where the central location bodes well for the processing and distribution of grains, dairy and meats that tie into the food sector.

While the food industry is thriving, there remains a shortage of cold storage space in many markets. According to a Q1 2019 report from Avison Young’s National Food Services Group, the demand for cold storage far outweighs availability in many markets, including New Jersey, New York, and Los Angeles.

“We continue to see a shortage of efficient and modern cold storage facilities in most markets across the U.S., as the industry tries to catch up to the rapid growth in demand for fresh and organic foods and online grocery delivery,” says Todd Heine, an Avison Young Principal and leader of the Chicago-based National Food Services Group. “Cold storage facilities are more costly to build, due to the specialization of the required infrastructure and limited ‘in-fill’ last mile land scarcity.”

As the industry grapples with this shortage, developers are taking advantage of new technologies to be able to build high capacity and highly efficient cold storage facilities on smaller sites, says Heine.

According to the report, an estimated 4 to 8 percent of the 888.6 msf of industrial space added in the U.S. since 2016 supports the food industry with warehouse, distribution, fulfillment and related uses.

Top 5 Food Industry Trends

According to the report, the Top 5 trends to watch are:

  1. Online grocery— Avison Young’s Food Services Group expects to see continued growth in processing and distribution, which will impact industrial space utilization.
  2. Cold storage— Increased demand but limited supply, particularly in primary distribution markets. Development challenges (cost, availability of land) are impacting the market’s ability to add new space.
  3. Last mile— will continue to expand to meet demands from growing online grocery and fresh food sectors. Expect to see increased competition for space near large population bases.
  4. Expanding use of automation— as companies look to improve efficiencies, particularly in light of the shortage of labor
  5. Food safety will be a bigger focus— as companies look closely at where food is sources and how the facility can support food safety and specialized
Chicago Industrial Market Surges in 2018

Chicago Industrial Market Surges in 2018

Feb. 8, 2018

As Q1 2019 gets into full swing, here’s a look at how 2018 fared and what’s ahead in the industrial, office and retail sectors.

Chicago’s Industrial Market to Expand by 18 MSF

While Chicago’s office and retail sectors declined in 2018 compared with 2017, the industrial sector showed solid growth in leasing and construction, according to Avison Young’s Annual Review and 2019 Forecast. The Chicago industrial market should see 18 million square feet of new space added in the next 12 months, including many speculative buildings. This, combined with continually decreasing vacancy rates, shows investor confidence in Chicago’s industrial markets, especially infill submarkets such as O’Hare and I-88.

Office and Retail Real Estate Moderates

The Avison Young report notes the employment picture was also bright last year, with employers in the Chicago metropolitan area adding more than 35,000 jobs year-over-year, according to this Bisnow story.

“Facebook, Google, Pinterest, Salesforce, Career Builder and Madison Capital have all recently announced major expansions in the CBD, which will increase local workforces as well as real estate footprints,” the report notes.

 

Q4 2018: Surge in Spec Industrial Construction in Chicago

In Q4 2018, Chicago’s speculative industrial development boom showed 19.5M SF under construction, according to research from Avison Young. That is a 59% year-over-year increase that is pushing development to new areas. This momentum has been seen for many quarters, as noted in this ULI Report.

“Many submarkets that are closer to the city have little to no space available for new buildings, so we’re continuing to see speculative development moving to outlying submarkets such as Southern Wisconsin,” Avison Young principal Chris Lydon tells Bisnow.

Chicago O’Hare Industrial Market Still Reigns

The O’Hare submarket had 4.9 MSF of new construction in Q4, increasing 50% from Q3. There is some concern about a few submarkets becoming overbuilt, however. The I-80 Corridor has the highest vacancy (12%) of any submarket, as it has seen 15.4 MSF of new construction during the past two years, with another 3.3 MSF underway.

Steady Outlook for Commercial Real Estate, Says ULI

Steady Outlook for Commercial Real Estate, Says ULI

Oct. 2018

What’s ahead for the U.S. commercial real estate market? Steady as it goes, according to this ULI Real Estate Economic Forecast.

Economist expect the market to remain strong for the rest of 2018 and continue to grow until at least 2020.  With continued job and GDP growth, vacancy rates in most sectors will stay steady or continue to decrease and rents will continue to rise, but at a decreased rate. In the following sectors, vacancy rates will all remain well below their respective 20-year averages:

  • Multifamily
  • Industrial
  • Office

Multifamily Sector Remains Strong, Says ULI

Apartments, which have led the charge in real estate growth, will retain their low vacancy rates, edging up to 5.2% by 2020. Experts anticipate apartment rental rates will grow by 2.9% in 2018, heading to 2% by 2020.

Job growth will continue to fuel the expansion of real estate. Experts anticipate the creation of 2.4 million new jobs in 2018, 1.9 million new jobs in 2019, and 1 million in 2020.

Industrial Update

As the industrial sector continues its strong run, the ULI forecast shows a slight slowdown in rental rate growth over time. In the past five years, industrial warehouse rental rates have grown significantly above the long-term average. The outlook calls for increases of 3.9% in 2018, 3.3% in ‘19, and 2.4% in ‘20.

WeWork Expands Shared Office Concept

WeWork Expands Shared Office Concept

Office lease sharing

WeWork is expanding quickly in New York and other key cities. Image courtesy of WeWork.

But Growth Questions Linger

August 10, 2018

Is this the next phase of the shared office landscape? Can WeWork sustain all the buzz and move to profitability?

The popular New York co-working space provider is now opening its doors to midsize companies that want to be WeWork members– but aren’t totally into that sharing concept! According to Ethan Rothstein of Bisnow, the concept would allow companies between 11 and 250 employees to have private and flexible space but fewer services than typical WeWork offices.

Companies committing to the HQ service line will sign a two-year lease agreement as opposed to month-to-month. They will not receive WeWork’s traditional concierge services, full stocked pantries and kegs amenities — but would choose from a list of space features for additional costs.

HQ by WeWork also allows companies who surpass the mark of 250 employees to use the company’s traditional office sharing locations for additional spots. With close to half of 1 million companies expected to expand beyond their midsize level within the next year, WeWork expects to soon exceed past their six office sharing locations in Manhattan. The focus is on Toronto, San Francisco and London for further expansion.

Office Lease Sharing Not Always a Quick Hit

While WeWork’s aggressive growth and impressive revenue stream have caught a lot of media attention, some are wondering if it’s too much too fast. The firm posted a net loss of $934 million in 2017 and $732 million in the first half of 2018, notes this Crunchbase story. Time will tell whether the growing revenue stream can sustain long enough to turn those numbers to black.

 

What Millennials Really Want in Commercial Real Estate

What Millennials Really Want in Commercial Real Estate

July 2018

What Millennials Really Want: Not the Fancy Office Space

Skip the fancy commercial real estate offices? That’s what some Millennials and members of Generation Z are saying — as they look beyond office space and a paycheck when they go to work, according to the 2018 Deloitte Millennial Survey. The survey captured the thoughts of more than 10,000 Millennials and nearly 2,000 Gen Z respondents globally.

Younger employees want to work for companies that drive societal progress, believe in social progress, practice environmental sustainability, and keep the safety of their employees and customers at the forefront at all times.

The report shows that their perceptions of businesses have changed, however, especially over the past year. The majority of Millennials now think that business leaders do not behave ethically or think outside of their own agendas.

The report indicated that the keys to keeping Millennial and Generation Z workers’ loyalty will be the showing that the company values the same things they value:

  • Training
  • Diversity
  • Flexibility
  • Sustainable environments

Since many commercial real estate decisions are made based on maintaining employees, business leaders should consider these factors when selecting a location for their office space and building out the space.

Office Space: Consider the Urban Core

By moving commercial real estate offices to the urban core, employers can find a diverse workforce of people and address sustainability issues. Many Millennials prefer to walk, bike or use public transportation to get to work because these modes of transportation are more environmentally friendly and don’t require car ownership.

Employers should also think about building out their commercial real estate spaces with collaborative areas for training. Younger workers are looking to hone their skills in softer Industrial Revolution 4.0 areas, and they often learn best in a more casual, small-group oriented environment, for example. Everything from flexible conference space to casual breakout areas with soft seating can help with these training needs.

General flexibility is also important to Millennial workers. Many of them have or would consider joining the gig economy as a supplement to or instead of having a full-time job, so they want to be able to work from anywhere—an office, their home, a coffee shop, or a beach. Employers should consider making sure their commercial spaces are technologically well-equipped to meet these needs. Collaborative spaces will also help bring employees into these offices when they do need to talk face-to-face with their colleagues.

Retailers Turn to Niche Opportunities

Retailers Turn to Niche Opportunities

Retailers turn to niche to thrive

May 20, 2018

By Lauren Farhat

Niche retailing should be considered risky business, right? Well, think again. According to Dees Stribling in this Bisnow national story, up-and-coming retailers can still look ahead to a bright future, but, “the niche has to be right.” With some retailers across the nation closing up shop, some such as Dutch men’s clothier Suitsupply, Magnolia Bakery and Club Pilates aren’t ready to be put to rest.

Suitsupply initially grew its brand in countries overseas. Unlike many other men’s clothing suppliers, the company now has big plans to expand beyond its 33 already existing stores in the U.S.. In selling, off-the-rack suits that are more expensive than mass-market but not as pricey as custom suits, the company’s niche is a perfect fit for cities like Brooklyn, Manhattan and Boston.

Retailers Focus on Niches

According to the Wall Street Journal, New York City brand Magnolia Bakery is also planning an expansion of franchises over the next few years. Except this time around, the company’s strategy isn’t to leverage from the sole success of its cupcakes, but the other parts of Magnolia that just as equally establish sales.

Other deep-seated commercial real estate retailers are those following the rage in the newly hot and trendy fitness world. Fitness chains such as Club Pilates, have been replenishing unoccupied spaces once filled by their failed retailer counterparts. Next year, Club Pilates foresees 5% to 10% of their locations occupying these types of retail spaces.

Will this niche approach work for retailers? It just might. As the industry transforms, look for more creative approaches that target niche markets. Consider how retailers are using a mix of online and bricks and mortar, for example.