Experts are claiming that speculative investment has returned to the industrial real estate sector, thanks in large part to an improving economy and tenant demand. Rents are climbing in key cities and rapid growth in the ecommerce industry is creating new needs for distribution and fulfillment all across the country. The Midwest, acting as a hub for the rest of the country, is well-suited for these types of projects and speculators are noting more and more opportunities as vacancy rates that had climbed throughout the recession now start to fall. For more on this continue reading the following article from National Real Estate Investor.
With industrial vacancy numbers continuing to improve across the country in the second quarter, speculative construction projects are popping up in tight distribution markets such as the Midwest,and Texas.
The demand is pushed by increased need from tenant, especially from the ecommerce sector, which has companies seeking new, renovated or expanded properties across the country. Amazon, for example, announced Monday that it will add more than 5,000 new full-time jobs in its U.S. fulfillment network because of growing consumer demand for buying online along with expectations of faster deliveries. Just this year alone Amazon has opened eight new fulfillment centers.
Rents are increasing in markets including Dallas, Denver, Boston andas available class-A space diminishes, according to a second quarter market report by Los Angeles-based CBRE. Demand for distribution remains high for both large build-to-suit properties larger than 500,000 sq. ft. and for large blocks of available multitenant space in new speculative buildings, according to the report. Both the Inland Empire and the Dallas/Ft. Worth markets each have a handful of large speculative developments.
Claim up to $26,000 per W2 Employee
- Billions of dollars in funding available
- Funds are available to U.S. Businesses NOW
- This is not a loan. These tax credits do not need to be repaid
The Midwest is also a prime spot for new speculative development this year. Trammell Crow Co. is breaking ground on the 185,470-sq.-ft. Midtown Business Center in Roseville, Minn., where the Minneapolis market has almost one million sq. ft. of speculativeunderway. CenterPoint Properties is building a 485,000-sq.-ft. facility at a 32-acre intermodal site in Joliet, Ill., as the Chicago area has about 1.7 million sq. ft. of speculative in the pipeline.
Also, standout Indianapolis has about four million sq. ft. of speculative space under construction, which includes the Opus Group building two warehouses totaling 924,530 sq. ft. in Plainfield, Ind. Douglas Swain, vice president and general manager at OpusCo., says Northwestern Mutual will own the speculative warehouses, which are going up on 52 acres north of Interstate 70 in the Plainfield Business Center. Airwest 12 will have 448,305 sq. ft., and Airwest 13 will have 476,225 sq. ft.
Swain says he’s seen steady absorption in markets where vacant space crept up during the recession. The Indianapolis market is popular, he says, because of its central location, cheap land prices, proximity to the Chicago rail network and a business-friendly state with plenty of tax abatements. It doesn’t hurt that demand still overshadows development, he says. “In Midwestern markets where there’s been very little development, it’s getting to a point where you just don’t have a lot of large blocks available,” Swain says.
Other markets have similar large-block emptiness, with Minneapolis and Cleveland both with only a handful of large-block class-A listings. The national industrial availability rate hit 12 percent in the second quarter 2013, according to the CBRE report, which is about 1 percent lower than second quarter 2012 and almost 3 percent lower than the recessionary peak in second quarter 2010.
Swain says he’s seeing a lot more interest from institutional investors and developers looking to capitalize on the tenant demand. His own firm has 20 projects underway that include speculative components. “With more new multitenant space coming, it’s really an indicator of where the market is,” he says. “I think there’s just a lot more comfort that these markets can support speculative space. Plus, when compared to other property types such as office and retail, it’s easier for speculative industrial to come back first, there’s just a lot more flexible building options.”
This article was republished with permission from National Real Estate Investor.