Article written by JOHN SALUSTRI,
who has been among the most
recognized journalists in commercial
real estate for the last 25 years, as
Editor of Real Estate Forum and as
editor of GlobeSt.com. John is currently
engaged in freelance writing
assignments. He may be reached at
firstname.lastname@example.org or 917-912-0038.
In this issue’s installment, let’s focus on the “I” in SIOR. The shape of the industrial market, in fact, the very shape of industrial assets, is changing and changing radically. The
sector that emerged from the long tunnel of the recession is a vastly
different animal than the one that entered; and market, social, and
technological forces are all drivers of that transformation.
In the run-up to the association’s highly successful Spring World
Conference, I had the opportunity to interview Mark Goode,
SIOR, of Venture One Real Estate in Lincolnshire, Ill. In the
interview, which appeared on GlobeSt.com, Goode was clearly
bullish on the state and direction of the national industrial market.
Build-to-suit developments will especially explode, he said; and
explode on a national basis as a growing population of tenants
faces a tight inventory of available space. There’s product out
there, but in the year-long absence of new construction, the great
majority of that vacant space is obsolete.
Goode noted that nothing new has been built in the last few years,
but a joint study conducted by SIOR and the Industrial Asset
Management Council, Designing Flexibility into the Industrial
Workplace, shows that the problem runs much deeper than that.
More than 60 corporate real estate executives who responded
to the survey for the study, all reported that their warehouses,
research sites, labs, and manufacturing facilities were at least 11
years old. No matter the age, Goode observed that as a result of
this obsolescence, there’s virtually no region of the country that
won’t see new class A products or refurbished older facilities
spring up in the next few months.
Much of this demand, he noted, is coming from manufacturing
companies returning to the United States. “Onshoring is real,”
he said, “Companies are bringing manufacturing and production
back from overseas.”
Builders of new and adapted space will find capital for “sensible
projects,” Goode said. “They’re finding competitive capital from
banks, insurance companies, and mortgage providers.” The terms
are still conservative, but deals are getting done.
I mentioned that there were cultural drivers behind the new shape
of the industrial market. Goode said that car makers are leading
the onshoring charge. But as an interesting side note there’s
apparently a new kid on the tenant block — at least depending on
the market you’re in. At the conference, I interviewed Steve Jaffe
of BH Properties, Los Angeles, Calif., for SIOR Live (available
on SIORglobal’s You Tube channel). BH is active in the Colorado
market, and Jaffe told me that there’s been interest in industrial
space by marijuana growers.
Like I said, this isn’t your father’s industrial market. Unless your
old man is Cheech or Chong.
Doobies or Dodges, the way industrial tenants work is also
undergoing a radical change, and this was made clear not only by
Goode but by conference keynoter Jack Uldrich as well. For his
part, Goode referenced the growing use of robotics in the slow job-growth economy. Tenants are taking large amounts of space and
filling them with fewer workers, but tech changes aren’t coming
just at the articulating hands of robots. More on that in a bit.
Industry’s new ways of working are putting serious strains
on that existing vacant stock, underscoring the obsolescence
factor. According to the white paper, conversion costs can vary
wildly, from a low of $2 a square-foot to a high of $750. This, of
course, is determined by the complexity of both the former and
Specialty-use facilities not only carry the heftier price tag, but
because of time in gestation, they also deliver the slower return