One of the biggest mistakes that companies make when searching for a suitable industrial facility is waiting too long to start the process. The closer you are to your lease expiration date or purchase of a new facility, the less leverage you will have with your landlord. Even if you wish to stay in your existing location, considering all possible alternatives is a must. Properly evaluating alternatives requires a strategic plan with a qualified adviser.
“I would suggest the process begin anywhere between nine and 18 months in advance of the targeted occupancy date. This timeline varies based on the complexity of the deal,” says Ed Lampitt, vice president and principal for Colliers Turley Martin Tucker.
Smart Business spoke with Lampitt about industrial real estate, the importance of a supply chain analysis and how to find a quality tenant representative.
What is the current environment for industrial real estate like in the St. Louis area?
2008 can be wrapped up in one word: uncertainty. In short, everyone is uncertain about how the election and oil prices will impact the economy. Corporate America is struggling to forecast future real estate requirements and real estate investors are concerned about the changes in the capital markets. All of the uncertainty in the economy is slowing things down. It is like trying to punch someone under water. As hard as you try, you can’t generate any momentum. All that being said, St. Louis has performed very well, with more than 1.7 million square feet of positive absorption through the first half of 2008.
What factors make capturing prime industrial space so difficult?
Construction pricing is a real problem. The overall price of construction is increasing at historical rates. Contractors and their suppliers are having a hard time holding numbers for more than 30 days. This makes it very difficult to forecast what deal you’re going to be able to make.
It is important to find a building as close to what you need as possible so changes to the space are minimized.
Another factor is fuel pricing. Companies are continuously analyzing how transportation costs are affecting their supply chains, how this will affect where their facilities are located and, ultimately, how they’re going to serve their customers.
Why is it important to develop a strategic real estate plan when searching for a suitable location?
It starts long before you start searching for an actual building. Corporations are spending more time on the front end analyzing the entire supply chain, not just one portion of it. You can not evaluate facilities in a vacuum. Manufacturing, transportation, inventory control and facilities are part of one discussion. Large corporations have been doing this for a while. The trend we are seeing now is advanced supply chain analysis with small and mid-sized companies. Everybody is trying to better understand what is happening in transportation in order to help determine where they should locate their facilities. Anymore, transportation is 50 to 60 percent of the decision-making process.
Once you get to the real estate portion, timing is so important. For instance, if you have your plan in place, you can look at a build-to-suit rather than just taking speculative space. This will provide you with more options, more flexibility and better economic terms.
What is the biggest mistake companies make as far as lease renewals go?
The biggest mistake is when a company renews without scouring the market to make sure it is getting a favorable market deal. This holds true even if you are not expanding, don’t feel a need to move, or don’t want to spend extra money to set up a new operation. It is important that the market thinks you are willing to move to drive the best economics.
Also, sometimes companies base their decisions on what they are currently paying and that is often a mistake. Typically the market has changed since their last lease expiration. That is where market information becomes so vital. It is strongly encouraged that companies engage a brokerage company to help understand how they compare to the market.
How should a company go about finding a quality tenant rep?
Time and time again, I am amazed companies rarely go through the interview process when selecting a broker. This is one of the most important decisions a company can make and it should take the time to evaluate who its adviser should be. Interview a couple of referred companies (or brokers) and let the best team win.
Lastly, instead of hiring just a broker, companies are hiring firms that can provide additional services. Often, real savings can be achieved in state economic incentives, construction management, supply chain services, etc. Considerable time and money can be saved in arenas outside the actual real estate negotiation. Remember, companies, at most, move every five to 10 years; tenant reps do it every day.
ED LAMPITT is a vice president and principal at Colliers Turley Martin Tucker. Reach him at (314) 746-0383 or email@example.com.