Tag Archives: industrial real estate

Next Gen Industrial

Industrial Space Demand Could Approach Record Levels in 2014

A new report released by the NAIOP Research Foundation says that net demand for industrial space could reach 250 million square feet in 2014, surpassing the near-record level of 233 million square feet set in 2013. This significant level of absorption is due to the expected return of housing construction, which requires warehouse space for building materials, appliances and furniture; the continued expansion of e-commerce which shifts goods from retail stock rooms to fulfillment and distribution centers; and the improving economy expected to grow by more than 3 percent.

“Demand for all types of industrial space – warehouse, fulfillment/distribution center, manufacturing and flex – is robust,” said Thomas J. Bisacquino, president and CEO of NAIOP, the Commercial Real Estate Development Association. “An intense increase in e-commerce has steepened the demand for distribution and fulfillment centers, and companies are gobbling up space as a result.”

Study authors, Dr. Hany Guirguis and Dr. Joshua Harris, predict growth will most likely result from the construction and retail trade sectors. Increases in new housing starts, up 18 percent in 2013, will likely continue due to sustained population growth and lack of new housing currently available on the market. Falling unemployment rates and increased growth in the U.S. have enabled families to spend more, fueling gains in retail sales, which set another all-time high in December 2013. The combined forces of these two trends likely will result in continued growth in demand for warehousing and distribution facilities, specifically from the retail trade and housing construction sectors.

Report Highlights Include:

· 2013 industrial net absorption reached a near-record 233 million square feet.
· Fourth quarter 2013 industrial net absorption came in higher than expected at 70 million square feet.
· 2014 quarterly net absorption will range between 60 and 65 million square feet.
· 2015 quarterly net absorption figures will range between 61.5 and 75.2 million square feet, with a mean forecast of 68.8 million square feet.
· As consumers purchase items online versus in person at traditional stores, demand for distribution and fulfillment centers will increase.

“We see the return of housing as a significant part of the economy driving the need for industrial space, as building products and materials need to be warehoused and shipped across the nation to meet local demand. Further, each new housing unit will need to be furnished and will create demand for other household goods, which in turn fuels even more industrial space demand. These are long-term trends and thus partially explain the forecast of strong levels of industrial space absorption,” said Harris.

“While we are encouraged by this positive growth in industrial, it is important to recognize that the same demand isn’t being experienced across the industry,” said Bisacquino. “The commercial real estate industry as a whole has yet to reach its full potential, due to uncertainties about fiscal policy and an unsteady economy.”

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Real Estate Relationships: Importance Of Representation In Tough Marketplace

By Tom Ellis

Businesses thinking of leasing space in Phoenix should have no problem finding a real estate broker to help them select the best site, and negotiate with the landlord on their behalf. But there is one thing the tenant must bring to the table — patience. Brokers who specialize in commercial tenant representation make it clear that site selection and lease negotiation are complex processes that can take several years to bring to fruition.

Real Estate Relationships, Arizona Business Magazine September 2008Retail
For Judi Butterworth, a principal at De Rito Partners and a Phoenix broker specializing in retail tenant representation, it all starts with becoming thoroughly knowledgeable about the client’s business. Then she looks at local geography, the freeway system, traffic patterns and changes in demographics. There are many questions her client must answer: What are the client’s goals? Will the client share space with other retailers, who are the ultimate co-tenants? If the client has existing stores here, will some of them relocate?

Retail leasing is more complicated than office and industrial, considering multiple locations and an out-of-state headquarters often are involved, Butterworth says. Client representatives come to town to look around, including the president.

“Part of what you do as a broker is really a process of elimination,” Butterworth says. “You’re given the criteria and you research all of the available space and decide which ones meet the criteria. That way, when you drive around with the client, you know what the alternatives are.”

Once a location is selected, Butterworth negotiates a letter of intent with the landlord. The letter delineates whether her client accepts the space as is or will make improvements; the money the landlord will allot for construction; the number of days allowed for construction; when the lease starts; and when rent payments commence. The final letter typically is approved by a client committee. Then attorneys for the landlord and Butterworth’s client draw up a lease that can be 60 to 80 pages long. After the lease is signed, Butterworth’s job is done.

Retail, office and industrial clients all must determine how much square footage they need, but that’s where the similarities end, according to Butterworth. Brokers representing industrial clients must consider railroad service, dockside service, ceiling height and freeway access. For office tenants, there are questions about the kind of floor plan that will accommodate all employees, where employees and vendors travel from to get to the building, parking requirements and area amenities.

Office

CB Richard Ellis in Phoenix specializes in office tenant representation. Chuck Nixon, a senior vice president there, says he first helps his client select an architect because changes to the existing space usually are needed. Then he rolls out a six-step process that’s the same for small, medium and large tenants — client needs assessment, market evaluation, landlord solicitation, negotiation, implementation and post-project documentation.

The client’s general criteria are gathered during the needs assessment, and a list of potential buildings is narrowed during the market evaluation as the client’s needs are further refined, Nixon says. Once a short list of buildings is drafted, Nixon sends a request for proposal to each landlord. Nixon and the client evaluate the economics of each Request for Proposal (RFP), and the architect evaluates whether the landlord’s proposal is a good fit.

The client accepts one of the RFPs and Nixon negotiates a letter of intent and then a lease. Nixon and the landlord may negotiate through several lease offers as an array of topics are addressed, including tenant rights to expand and reduce the space, tenant improvements as specified by the architect’s design and rights to terminate and renew the lease.

“Typically, the client is involved (in negotiations) as much as they want to be,” Nixon says.“Some want to be involved in just key decisions. Some want to be involved in all points of discussion.”

Implementation includes construction and final lease documentation that covers such areas as lease term, rent, additional costs (i.e. property taxes and/or maintenance), security deposit, subleasing and dispute resolution. In post-project documentation, Nixon makes sure the client’s move into the space is coordinated and that the client is happy.

Market OpportunitiesArizona Business Magazine, September 2008
Current market conditions offer more opportunities than challenges for tenants, Butterworth and Nixon say. The main challenge is selecting the right building. Butterworth and Nixon make sure they work the opportunities into lease negotiations.

The construction frenzy over the past few years has resulted in an ample supply of retail and office space, and Butterworth and Nixon say vacancy rates have climbed. Consequently, landlords are aggressively pursuing tenants, and brokers can negotiate lower rents or no rent for specific periods of time. Landlords are offering more concessions and are flexible on tenant improvements and parking requirements.

“Clearly, it is a tenant-friendly environment and will be so for the foreseeable future,” Nixon says. “Which is good. One thing you don’t want as a tenant is limited options.”

www.cbre.com/phoenix
www.derito.com