Retail trends have had a huge impact on the industrial market for the last few years. Amazon shifted the entire e-commerce industry to lightning-fast shipping, which means that industrial centers and warehouses are being moved to closer-to-the-city locations to handle the load.
On top of that, the trend toward reduced store size means that there’s more need for off-site storage and warehousing for retail products than ever before. Here are 3 other ways that the industrial market is being impacted by retail.
#1: Massive Closures of Big Retailers
Everything that you could buy at places like Sears, Kohl’s, and JC Penney can be ordered online at Amazon for less and with front door delivery. Because of that, retail giants are seeing massive closures. This year alone, Sears is closing 150 of its stores, JC Penney is planning to close 140 stores, and Macy’s is closing 100 stores but they’re not the only ones.
Brick-and-mortar retail overall is preparing for massive closures due to bankruptcy over the next year, largely because of Amazon, but also other online retailers. These closures are both haunting and inspiring for the industrial market. Those holding leases for big box stores are preparing for huge hits. Those investing in these shuttering retail stores have big new innovative ideas for how to reuse these spaces.
#2: Rethinking of Industrial Space Use
The vacancy rate for industrial space hit a low point last year with a basis point drop of 70 points to 5.6%; lower than the record low hit in 2000. Those vacancies may not last long as industrial leaseholders and investors seek to find new uses for spaces now housed by failing retail giants.
Again, e-commerce is the driver behind this trend sweeping through the industrial market; the rethinking of industrial space use. Some old shuttered storefronts make excellent fulfillment and distribution centers that are located closer to city centers. They are now being converted to handle last-minute-mile issues for new online retailers to aid in faster on-time delivery.
#3: Global Consumption Increases due to E-Commerce
U.S. retailers aren’t the only ones feeling the effects of retail on the industrial market. E-commerce has also increased global consumption and is expected to account for at least 30% of the global economy over the next several years. Products once cost prohibitive for people living in the Far East are now as easy to order online as they are in the U.S.
That has helped to expand the global reach of online retailers beyond U.S. borders. With that, the need for more physical space to house all of the goods needed to accommodate the growing global demand for faster delivery has made once abandoned industrial spaces more attractive.
Some of the top players in the global market demanding more supply from U.S. online retailers are China, Brazil, and Mexico. Expect the reach of global goods from online retailers in the U.S. to expand to other parts of the world, thus further increasing the appetite for more industrial space.
Written by Nicole Brzyski for Coldwell Banker Commercial Affiliates
4 Not-So-Obvious Reasons Why Warehouses are Hot Investments Right Now
Vacancy rates are at all time lows. Absorption rates are at their highest and the “industrial sector has outperformed all other property types with double-digit total returns” according to the Integra Realty Resources 25th annual Viewpoint report covering the commercial real estate industry.
The obvious reason behind this surge in investor excitement about warehouses is the growth of e-commerce, but that’s not the only reason. Here are 4 not-so-obvious reasons why warehouses are hot investments right now.
#1: Asian Investors Spark Multi-Story Warehouse Trend
In China and Japan, investors have been producing multi-story warehouses for the last few years to support global and national logistics. The ability to load multiple trucks through the same warehouse and out the door is only now being tested in Seattle and San Francisco. Investors excited about the possibilities for last mile deliveries using multi-story warehousing is heating up interest.
#2: Businesses Compete for Logistical Space
Speaking of logistics – the international term for industrial warehousing – is creating new competition in secondary CRE markets. Demand for these assets is outpacing retail and office, and it is the CRE sector in highest demand worldwide. With cap rates as low as they are, secondary markets are proving to be viable options now that primary asset prices are on the rise, all in an effort to move goods and products faster.
#3: Foreign Investors Eye ECommerce-Ready Industrial Warehouses
U.S. investors only started eyeing industrial warehouse assets en masse a few years ago. Now foreign investors are getting in on the act, foregoing investments in status symbol sky rise buildings and offices and instead are looking to capitalize on e-commerce-ready warehouses; those most strategically placed for e-commerce as well as those equipped to process online orders rapidly and efficiently. Competition is coming from Asia but also countries like Canada and Germany are looking to invest in U.S. warehouse space.
#4: Fast Closes, Low Debt Assets Attract More Investors
According to one major investor, up to 70% of transactions involving industrial warehouses are cash deals. Cash deals close fastest and carry less debt. With all of the competition driving demand, buyers are using cash to get a leg up on competing bids. Unlike office and retail space where investors finance a large chunk of the costs over the long term, all cash deals are more attractive to investors who look for faster closes and are willing to take on less debt. Warehouses are providing that avenue for investments and investors of all types are seizing on it.
Post written by
DJ Van Keuren
DJ Van Keuren is the Vice President for the Hayman Family Office/Hayman Properties & is a graduate of Harvard University.
Just today I received a call from a potential syndicator who asked for my opinion about family offices investing in Opportunity Zones and what my thought was about which of these markets seemed like the best place to invest. The initial premise of his question was, “Do you think families will embrace this opportunity?” I told him that yes, I do. I think a lot of families will look to take advantage of the Opportunity Zone program, but I also believe that many family offices will make investments into Opportunity Zones that will not produce the results that they expect.
Why? Because unlike the SEC or FINRA, which want to put parameters on who can raise money or sell securities, the government has put no limitation on who could start and operate an Opportunity Zone Fund. I believe this will lead to many people selling the sizzle and the tax benefits of the program, rather than the real estate investment itself. As I have said in the past, regardless of the tax benefits, you still have to have an excellent investment opportunity that is being managed by a proven operator. These are the fundamentals of real estate investing.
The second question he asked me was if I thought there were more opportunities in secondary and tertiary markets than the major markets. It was an excellent question. If you look at New York City right now, there are many real estate investment opportunities that are selling at a high price relative to other markets, like Boise, Idaho or Nashville, Tennessee. Although these capitalization rates are quite low in NYC, they are in a city that keeps gentrifying — and that has pushed from beyond lower Manhattan and into Brooklyn for quite some time now, and I believe it will head up through Harlem like a wave.
If there are Opportunity Zones that butt up against a major city, then there could be some excellent opportunities, but regardless, you have to take a good, hard look at a market demand analysis. Is the population in that area shrinking or growing? What is the current income like in that area? Is it close to public transportation? Is the “wave” of gentrification coming that way? These are just a few of the questions outside the investment you should look at, and if your operator can not provide this information, then I would start looking elsewhere. This type of nonmarket information happens quite a bit when the market is doing very well and people are hopping into the market to become “the next big developer.” This could easily happen with Opportunity Zone properties.
Location, location, location is still the most important thing to consider in any real estate investment. So what about secondary markets? Let’s look at Las Vegas for example. I was there with a good friend from another family office, and we were in the old part of Las Vegas where it all started. Apparently, that area has already begun to gentrify with the help of the Zappos CEO Tony Hsieh, who has been pouring money into that area since well before the Opportunity Zone program came about. Do I think this is a “good” Opportunity Zone? Well, yes! Why? Because it is close enough to the central part of the city, and the gentrification process had already begun prior to the announcement of the Opportunity Zone program.
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Personally, if I were to look for an operator to work within an Opportunity Zone, what I would look for would be pretty simple. I would find an operator who has experience in low-income housing or working with Historic Tax Credits that have already been working in these types of locations and properties. They will not only be able to provide a track record that will include actual working knowledge of real estate investment in those areas, but they will also provide proven results. If this operator were getting 8% returns from past projects, being able to use the benefits of the Opportunity Zone will only increase your returns well into the teens. Now that would be a good Opportunity Zone investment.
DJ Van Keuren is the Vice President for Hayman Family Office/Hayman Properties & a graduate of Harvard University.
1. Measure Current Energy Use
Saving energy and water is a way to enhance your bottom line and help the environment. Measuring the amount of energy a building uses will help point out areas that are wasting energy, and start a path to correcting the areas that are contributing to the waste. One resource, ENERGY STAR, is a free tool provided by the U.S. Environmental Protection Agency. This tool helps measure emissions and also energy and water usage in your building. Industrial sensors and monitoring systems can also be beneficial to know exactly how much energy your building is using. Once you have a good measurement, it can be applied to monthly tracking and also monitor the areas that still need work.
2. Saving Water
Heating/cooling and pumping water throughout your building is directly correlated to your energy usage. Reducing your buildings water use can lower your energy bill in a significant away. Some saving water solutions Include: installing more efficient faucets, showerheads, toilets, and urinals. In common areas that get high traffic, install automatic faucets that turn off automatically when left on. Making sure old water heaters and pipes are insulated correctly to insure the system is still running effectively can also help. Remember, saving water can lower the energy bill and also help the environment along the way.
Lighting uses around 25 to 45 percent of the energy in a commercial building. Lighting is needed in a commercial building, it’s not something that can be avoided but there are some things that can help reduce the percentage. Installing new lighting is easy and inexpensive. Some resources include: replacing incandescent bulbs with fluorescent bulbs or even more efficient would be LED. LED lights usually take less than a year to pay for themselves so upgrading is cost effective. This can cut energy use in half when it comes to lighting. Informing the people who occupy the building about energy conservation is also important. Doing simple things like making sure the lights are turned off when exiting a room/building can make a difference. Additionally, installing light sensors and timers in high traffic areas can pay big dividends. The sensors can detect when there isn’t any activity within the room and shut the lights off automatically. A company called Current creates a lighting estimator that can help to estimate the amount of lighting being used. (https://www.currentbyge.com/ideas/simple-lighting-energy-estimator)
4. Shading Systems
Although having open blinds/shades are nice, they can cause unnecessary heat from glare of the sun. This has a direct effect with the heating/cooling and ventilation of your building. Managing the natural light in your building with motorized shades, which can be programed to move up and down with the sun to keep temperature levels at a standard level can help save on utility costs.
5. Energy Awareness Program
Creating a program within your building that makes energy conservation a priority can help bring awareness to those who occupy the building. If someone in charge enforces the awareness, the likelihood of the program to work is much greater. Creating posters, newsletters, and even sending reminders through email will help with the process. Making people aware of the efforts to save energy and ways they can help reach the goal will create a great start within the building.
“Facility managers who link energy management with maintenance management and building controls can unlock 15% or more of operational cost savings.”
—Verdantix, Smart Innovators: Facility Optimization Management, June 2017
While looking at the upfront cost of upgrading your building to make it more energy efficient can seem high, the money is soon recouped through the reduced utility bills and maintenance expenses. Making your building more energy efficient also makes the building more valuable. New energy efficient technology can be incorporated into any size building and can create a huge money-saving upgrade.
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With the fast paced life Millennials are living today, they desire a working environment and home life that is technically advanced, comfortable and convenient. From office space to home life to even industrial warehouses for e-commerce, everything is changing for the desires of this age group. Huge industrial style buildings are being built to keep up with the demand for delivery from places like amazon.com. Bulk distribution areas are a growing need to meet the expectations of this generation. Along with the rest of the working class, the work force in these industrial areas expects to have opportunities to collaborate with each other and have the same amenities as any other working environment.
Office spaces are also changing. The cubical will soon be a thing of the past and more open meeting spaces will be the new office. Millennials believe that office areas should be for teamwork and a collaborative company effort. Along with these open offices, Millennials desire amenities located in their work environments. Some might include: a full kitchen, convenient gym, technology allowing air temperatures to be changed from smart phones, and especially high speed Wifi. Some companies have gone as far as installing indoor go-kart tracks and breweries. There is also popular demand for old, vacant buildings to be turned into a creative space with all the same options. Former freelance writer Don Jacobson comments on this idea stating “We have found that our tenants, particularly millennials, share this thinking and are naturally drawn to locations with deep historical significance, but they also need to be functional in a modern business setting.”
Outside the working life of a millennial, there is the need for functional home spaces. There is a growing need for urban areas and a decline in rural settings. Houses need to be located near restaurants and other fun entertainment. The outmoded urban houses are also popular with updated modern functionality. Millennials are changing industrial real estate and modernizing it to fit advancing needs.
209 NW 75th St, Gainesville, FL 32607
Prime commercial parcel at .87 acres situated on a high traffic count 4-lane SW 75th Street (Tower Road) surrounded by big box retail, medical, restaurant, automotive, financial and office with expansive residential beginning a short distance to the south. 5130 sf building is faced brick construction with a drive through currently used as a daycare and originally configured as office/medical. Play area on east side can be reconfigured as additional parking.
Zoned Business/Retail the possible uses include residential over commercial, educational/vocational, medical/lab, restaurant, business/professional, bank/financial, gym, doggie daycare, dance, art and retail sales. Major north/south, east/west transportation corridors includes major interstate hwy exchange in close proximity.
From Newberry Road and 75th Street (Tower Road), drive south just past Home Depot to building on the left.
This building has so much potential with 5130 square foot currently configured into rooms, the drive thru and yard area, leaves many options for this property. Lease if for $5,985/month NNN or purchase this great building for your own business or income property for $780,000.
Give me a call today, don’t miss out on this great opportunity!
12787 NW US Hwy 441 Alachua, FL 32615
This spacious office building is 27,658 SF with individual offices and large open areas is just ripe with potential. Owner owned business is occupying the building and can stay and lease part or vacate. Owner may wish to reserve one acre to build for the school occupying a portion. 7 acres total land on the property. Former Battery plant location.
Possible manufacturing type operation for the facility. Three phase power runs to the building.
Go north on 441 from Gainesville. Property on the right,
This building has substantial potential, make it yours for $47/SF! Square Feet: 27,658
Purchase Price: $1,300,000
15652 NW Us Highway 441, Alachua, FL 32615
Lease this fantastic building that was previously Bank office space with drive-through and yard space. It is available on 441 in Alachua Crossing Shopping Center just a mile from Interstate I-75. Previously a bank operation with all the finest appointments. Easily converted into a retail type operation with drive-through. Join high volume tenants Dominoes, Moes, Mi Apa, and other fine retailers as well as the quaint and thriving Alachua Community.
From …Gainesville 441 North past main street in Alachua on the left. Sign on the property.
The town of Alachua is coming into its own with commercial business. Here is your chance to get into a building in a great area for potential growth. This 1800 SF building is available to lease for $3,150 /Month NNN lease.
Give me a call today, don’t miss out on this great opportunity!
Through out the month of July stay updated in learning some key terms that you should know in the Industrial Market World.
Cap Rate- Is a calculation that reflects the relationship between one years net operating income and the current market value of a particular property, The Cap Rate is calculated by dividing the annual net operating income by the sales price (or asking sales price)
Full service Rental Rate- Rental rates that include all operating expenses such as utilities, electricity, janitorial services, taxes and insurance.
Leased Space- All the space ;that has a financial leased space, regardless of whether the space is occupied by a tenant. Leased space also includes space being offered to sublease.