Commercial Investment Real Estate November/December 2018 | Page 19

Contributing Factors No single culprit, but rather a perfect storm of factors, is driving this situation. Although rent growth is strong, the growth of construction costs is outpacing any gains. A recent light incubator industrial project in Contra Costa County utilizing concrete tilt-up con- struction requires rents of $1.28 psf per month just to cover the construction and soft costs, while the land cost pushes rents to $1.50 psf per month to achieve an 8 percent return. Approvals take longer, cost more, and face “not in my backyard” (NIMBY) opposition. Hearing that although rents are skyrocket- ing, the value of their land has not changed due to the higher devel- opment costs, owners are not eager to part with their land. Local non-governmental organizations extract expensive con- cessions to allow development in their area. Demand from emerging markets like cannabis drive up pric- ing in areas with the proper zoning, virtually eliminating vacant space in that area. Finally, the conversion of industrial to residential land further reduces the supply of land for industrial development. Finding Resolution Possible solutions to ease pressures include municipalities stream- lining the approval process to reduce time frames, plus looking at sewer and water fixture fees. Smaller multitenant projects are vulnerable to these types of fees due to the higher number of individual units/rest- rooms for a given size compared to a single tenant unit. Protection of existing industrial-zoned sites from conversion to non-industrial uses is another option. For example, in 2014, Contra Costa County enacted a Northern Waterfront Eco- nomic Development Initiative to protect existing industrial-zoned land, but had limited success. Ultimately, the industrial housing crisis across the nation is a critical factor in continuing eco- nomic growth. It’s important to facilitate the development of smaller, incubator-style projects to ensure an adequate supply of space for industrial startups and help balance the need for industrial housing with the rest of our needs for real estate. Eric Rehn, CCIM, was 2017 president of the CCIM Northern California Chapter and is a vice president with the brokerage division of Kennedy Wilson in Concord, Calif., where he specializes in the sale and leasing of investment properties throughout Northern California, including light industrial and ware- house properties. Contact him at [email protected]. CCIM Development Specialty Track Open to all commercial real estate professionals, the CCIM Development Specialty Track program is one of the industry’s leading continuing education concentrations, providing developers, investors, and consultants with a comprehensive understanding of the entire process of development from due diligence to disposition. The program content is structured around the Real Estate Development Matrix developed by Daniel Kohlhepp, Ph.D., of the world-renowned Johns Hopkins Carey Business School. Next Classroom Courses: Introduction to Development Workshop Date: March 25-27, 2019 Location: Addison, Texas Date: Aug. 27-29, 2019 Location: Chicago See additional course listings at www.ccim.com/dev-track. Course Formats: Classroom and Online Instructor-Led To learn more visit www.ccim.com/dev-track or call [phone], opt 2 CCIM.COM November | December 2018 17