The vacancy rate for commercial/ industrial properties in the Dallas/Fort Worth area is a normal, healthy 9 percent. Even though facilities are plentiful, Gary Lindsey, SIOR, Senior Vice President in the local office of Grubb & Ellis Company, says that businesses seeking new or more space shouldn’t wait until the last minute.
Allowing adequate time for a facility search is critically important. One should allow for the actual touring of properties; narrowing the alternatives; issuing requests for proposals; analyzing the proposals; picking a building; space planning; document negotiation; finishing out of tenant improvements; installation of racking, phone systems / IT and personal property; and, finally, the move itself. Taking one’s eye off the timeline can result in holdover penalties at the old location or, even worse, ineffective negotiations if in a hurry.
In past years there was a tendency for tenants and their representative to focus solely on base rental rate and perhaps some concession. Now a great deal more time is spent negotiating deal points of a lease document, for example, cap controllable operating expenses, options to expand as well as contract, early termination options should things change before expiration, indemnification for environmental conditions, etc.
Smart Business asked Lindsey about key factors that affect a company’s occupancy of industrial real estate properties.
When contemplating a physical move, what should corporate executives consider?
Available trainable labor is always near the top of the list. Most human resource experts interested in opening a new manufacturing facility or distribution warehouse are paying attention to where the labor comes from in relation to the potential sites. Mass transit and car pooling have become much more important with employees spending more of their paycheck on fuel.
Companies today are more focused on total operating costs meaning taxes, insurance, common-area maintenance, property management and all the ‘moving parts’ that get passed on to the tenant, not to mention the cost of utilities.
Finally, location relative to proximity to the interstate highways is critical due to the high price of diesel fuel. Companies must determine where vendors and suppliers are, as well as where their customers are, in order to cut distance traveled and save transportation costs. You can only pass along price increases to customers for so long before they get to a point where they stop buying.
How important are environmental concerns when selecting (to lease) or designing (to own) industrial properties?
Developers and corporate America alike are trying to figure out ways to save our planet like installing solar panels, using wind power, installing adequate insulation and collecting rainwater for irrigation purposes.
In the U.S. and other countries around the world, LEED [Leader in Environmental and Energy Design] certification is the recognized standard for minimizing environmental impact. The LEED rating system promotes design and construction practices that increase profitability while reducing the negative environmental impacts of buildings and improving occupant health and well-being.
There are four LEED certification levels Certified, Silver, Gold and Platinum that correspond to the number of credits accrued in five categories: sustainable sites, water efficiency, energy and atmosphere, materials and resources, and indoor environmental quality.
Within a year or so, getting LEED certification on industrial buildings is going to be standard. Some places like California (but not Texas yet) are rewarding owners with tax abatements and tax credits for being LEED certified. They will eventually penalize developers for building to old standards.
LEED certification is really important to most developers, who are hoping that their prospective tenants are of like mind. The 12 percent to 15 percent premium for environmentally friendly buildings can amount to quite a bit of money. Time will tell.
How much lead time should a company allow for selecting and moving into an industrial site?
Some transactions are not complicated at all and can go quickly while others can be painful. Allowing enough time to execute the process is extremely important. You would not believe how many large companies leave just a couple months window to find and occupy a new building. Common sense tells you that somebody leasing or purchasing a significant building would start six to eight months in advance but many don’t.
It’s important to allow enough time to explore alternatives and create leverage so potential (and current) landlords don’t perceive time constraints. The goal is to complete a comparative analysis and create competition amongst several landlords. Finally, establish a time line and hold team members accountable for each step.
GARY LINDSEY, SIOR, is Senior Vice President in the Dallas Office of Grubb & Ellis Company and a 35-year veteran of the industrial real estate business. Reach him at (972) 450-3249 or firstname.lastname@example.org.