Commercial Investment Real Estate September/October 2018 | Page 28

Developers Keep Foot on the Gas
Construction activity has been fairly robust for the past five
years, and developers don’t appear ready to tap the brakes.
“The market remains very active. 2016 and 2017 were ban-
ner years for us, with 2018 looking equally strong,” says
Angie Wethington, CCIM, JD, a director at Scannell
Properties in Indianapolis. “We saw a slight slowdown in
activity in the market in April/May of this year, but activ-
ity has picked back up, with build-to-suit RFPs coming in
across the country and spec space that is leasing up during
construction,” she adds.
Several factors are contributing to demand for new indus-
trial space. The explosive growth of e-commerce certainly
has played a major role. Online sales grew by 16 percent to
reach $453.5 billion in 2017, according to data from the U.S.
Commerce Department, and some industry forecasts are
predicting an even higher growth rate this year.
One of the notable trends within e-commerce is expan-
sion occurring within online grocery and food sales, which
is driving demand
for refrigerated/
freezer space with
facilities that are
located closer to the
end user, Wething-
ton says. Infill loca-
tions are critical to
answer that last-
mile need, while
suburban greenfield
development con-
tinues to be active
for the larger square
footage require-
ments ranging from 500,000 sf up to over 1 million sf, she
says. In addition, there is continued demand for more nodes
that bridge the gap between the large 1 million-plus sf ware-
houses and the infill urban logistics locations, she adds.
“We’re not seeing any slowdown in the demand for indus-
trial in any of our markets,” agrees Jason Conway, CCIM,
director of real estate development at Opus Development
Co. in Minnetonka, Minn. Opus currently is developing
about 4.5 million sf of both speculative and build-to-suit
industrial space in Phoenix, Denver, Chicago, Minneapolis,
Cincinnati, Indianapolis, Milwaukee, and Kansas City. For
example, Conway is wrapping up the third spec industrial
project the firm has built in Des Moines, Iowa, in the past
few years, featuring a 200,000-sf warehouse with 32-foot
clear ceiling heights.
Des Moines sits at the confluence of I-35 and I-80,
which provides a good access point for companies distrib-
uting goods throughout the Midwest. “We’re seeing not
only local companies, but regional and national tenants that
“The size of
warehouses may
be shrinking in
some of these
locations, but
the demand is
fairly consistent
for national-level
retailers.”
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September | October 2018
are actively looking for space in the Des Moines market,”
Conway says.
Construction Activity Widespread
Development traditionally has been concentrated in the
big five industrial hubs — New York/New Jersey, Chi-
cago, Atlanta, Dallas, and the Inland Empire, and those
industrial centers remain a key area of focus for developers.
“From those locations, you can pretty much service 95
percent of the population within two days. That is really a
catalyst for most major retailers to have distribution facili-
ties in those areas,” says Matt Powers, CCIM, executive
vice president of JLL’s Retail/E-commerce Distribution
Group in Chicago.
The desire to locate closer to population centers and last-
mile delivery continues to influence location decisions. That
being said, activity is widespread across the country. Sup-
ply chains need to supplement major national distribution
facilities with other regional facilities. For example, retailers
can’t service Miami from a distribution center in Atlanta, so
they have secondary locations in Miami or nearby Orlando,
Powers says. “The size of warehouses may be shrinking in
some of these locations, but the demand is fairly consistent
for national-level retailers,” he says.
In addition, individual markets have their own unique
drivers for demand that go beyond consumer-driven supply
chains. Heavy industrial has been booming in southwest
Louisiana, with more than $50 billion in new construction
projects coming to the market, primarily concentrated in
large, capital-intensive projects, says Andrew Vanchiere,
CCIM, SIOR, commercial sales and leasing agent at NAI
Latter & Blum in Lake Charles, La. Some of these projects,
which largely are driven by liquefied natural gas (LNG)
exports and chemical manufacturing plants, will be flipping
the on switch in the not-too-distant future, he says.
The second half of 2018 and into 2019 potentially will
bring another $25 billion or more in various stages of front-
Top 5 Metros
for Office/Warehouse Completion
1Q2018
Rank
City Size (sf)
1 San Bernardino/Riverside, Calif. 5.5 million
2 Atlanta 4.9 million
3 Dallas 2.3 million
4 Los Angeles 1.4 million
5 Central NJ 1.1 million
Source: Reis
COMMERCIAL INVESTMENT REAL ESTATE