Industrial Market Trends, Takeaways from SIOR CREate 360 ​​– Commercial Property Executive

Patricia Loveall, Global President of SIOR, and Tal Hicks, President, Hillwood Investment Properties.

Industrial real estate dominated the buzz at the SIOR CREate 360 ​​conference in Dallas yesterday. And why not ? Business demand for industrial space is unprecedented, and the impending recession should, at worst, temporarily flatten growth. The outlook for the office, on the other hand, is less robust and less defined as companies large and small strive to redefine what the office means to them.

Industrial brokers and developers focused on meeting soaring demand are not without concern, however. The first problem is the low vacancy rate and the scarcity of new development sites. According Matrix Yardi, the national vacancy rate in August was 4.1%, down 30 basis points from July. The lowest vacancy rates were in the Inland Empire (0.9%), Columbus (1.8%), Nashville (1.9%), Los Angeles (2.0%) and Indianapolis (2. 0%). In Dallas, the vacancy rate was 3.7%.

Then there’s the rise in interest rates, which makes transactions speculative and tailor-made – already burdened by supply chain issues, labor shortages, rising construction costs and the soaring rents – even harder to grasp.

During a panel titled “Commercial Real Estate 2030,” executives from some of the most active industrial development companies—Hillwood, Prologis and Link logistics— discussed the challenges of growing the industrial market and how their companies are preparing for what the next few years may bring economically. Here are the key takeaways from this panel:

Designers need to adapt quickly

Architects and engineers quickly redefined what a state-of-the-art industrial building looks like to meet tenants’ desire for maximum site and parking capacity, and ceiling heights that could accommodate Wi-Fi networks. -Fi sophisticated for automation and additional air conditioning.

“(The designers) have been in a very difficult environment, but I think they are about to take a break,” said Tal Hicks, chairman of Hillwood Investment Properties.

The eligibility process becomes more difficult

Jonathan Rudersdorf, President of Prologis Central Region, and Brian Strohl, Senior Vice President of Development, Link Logistics.

As e-commerce companies devour infill locations, local communities challenging these projects are slowing down an already difficult development process. “There are a lot of NIMBYs out there with good reason,” said Brian Strohl, senior vice president of development for Link Logistics, which focuses on infill projects.

Elaborating on Link’s community impact strategy, a company spokesperson told CPE that the company “is focused on being a positive force for economic growth by helping businesses of all sizes to find the space they need to grow by investing in job-creating facilities that boost local economies.” .” Link’s $8.8 billion development pipeline will create 36,000 full-time jobs as well as 56,000 construction jobs, the spokesperson reported.

Communities that enjoy the benefits of e-commerce and additional tax revenue are tenacious but willing negotiators. “You have to get into the mindset that you’re going to have to sacrifice something to get what you want,” Hicks said.

Site selection requires creativity

Developers are expanding their search to find land for new industrial properties. The repurposing of obsolete structures, the relocation of natural obstacles and the remediation of brownfield sites are all in play now. Another option for infill locations is to team up with another development project and another developer.

“We are now part of a mixed use as we try to be creative,” said Jonathan Rudersdorf, president of the central region of Prologis.

The macroeconomy also has an impact on the industry

While the growth of e-commerce seems impenetrable, the macro economy and real estate capital markets will likely slow development for some time. Rising interest rates and fears of recession have made borrowing more expensive. Meanwhile, the number of lenders willing to lend for development is shrinking.

Hillwood, Hicks said, doesn’t do spec development even when the capital is there because of the uncertainty surrounding interest rates and cap rates. “Developers will need a higher return on cost,” he said.

As for Prologis, the country’s largest industrial owner will “protect its capital” and “benefit from what comes out of it at the rear,” Rudersdorf said, noting that he expects a correction on the land side.

Sustainability always matters

Despite the urgency to meet demand, sustainability is still important, proponents stressed. Link Logistics’ parent company Blackstone is “all in” about sustainability, Strohl said, and LINK’s entire construction pipeline is aiming for LEED Silver.

Prologis, meanwhile, aims to be emissions-free by 2040. “That’s our goal, but it’s a lot of our tenants’ goals,” Rudersdorf said. In deregulated Texas, for example, Prologis is working on the installation of on-site storage batteries combined with solar. “We start in places where we can control what we control and go from there,” Rudersdorf added.

The panel was moderated by Patricia Loveall, SIOR, Executive Vice President and Partner, Kidder Matthewsand Global SIORis the new president.


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