Right on target Featured

8:00pm EDT March 26, 2008

The industrial real estate market has changed dramatically over the past several years, acquiring a new, competitive edge.

“I think the saying, ‘a warehouse is a warehouse is a warehouse,’ isn’t true anymore,” says Terry A. Stieve, SIOR, CCIM, senior vice president, principal at Colliers Turley Martin Tucker. “Putting ‘For Rent’ signs up and waiting for calls just doesn’t cut it anymore.”

Succeeding in this environment, he says, often requires an aggressive marketing campaign, as the marketing period for larger spaces can be 12 to 18 months. Space becomes forgotten about by the brokerage community while the landlord continues to incur operating expenses and negative cash flow. Keeping your space fresh requires understanding the economic drivers and how the building is positioned in the marketplace. The largest users in the area are typically the market drivers, while transportation systems identify the linkage and positioning of the property. The marketing team has to be proactive, understand why the property does not work for the market drivers, and attempt to reposition the property to meet those requirements. Good marketing and being prepared means having creative tools to address concerns.

“These buildings show poorly, but just as importantly, they get tired. Brokers forget about them,” Stieve says. “They get market worn. That’s when you’ve got to reposition that building in brokers’ minds.”

Smart Business spoke with Stieve about ways to move properties in today’s sluggish real estate market by accommodating your target market.

How has industrial real estate changed?

When I first got into the business, we used simple brochures with pictures and limited information to get a showing. Now we have intricate Web sites with details and specifications of the property. As a result, prospects only tour the two or three spaces that best meet their needs. We have less property showings now, which results in fewer opportunities to be a deal maker and promote your property. In today’s market when you do have a showing it’s because you’re one of the finalists. With fewer at-bats, you have to increase your properties’ market appeals to as broad of range of tenants as possible. Industrial real estate leasing remains a numbers game and today’s successful brokers are increasing the number of showings by being creative in adapting their space to a wide range of tenants. Corporate consolidations show no signs of stopping and, generally speaking, there are fewer and larger tenants active in the market now. Meanwhile, tenants have become more knowledgeable. The ones that are in the market for larger sized industrial spaces, say above 25,000 square feet, are very educated buyers.

How else can investors and landlords be proactive?

When it comes to big bulk warehouses, tenants can not use the 32-foot clear stacking height in these large buildings without racking to store the pallets 6 and 7 feet high. Traditionally, real estate brokers marketed square footage when tenants like Procter & Gamble wanted to lease storage for 50,000 palettes. Landlords now are including racking as part of the tenant finish build out to better serve their customers and to differentiate their space while increasing the chance of renewing the tenant. So, owners are taking extra steps to lease their buildings.

Are there any other market drivers that you haven’t mentioned?

No question the global economy has cost American jobs. However, a report by the St. Louis Federal Reserve stated technology has had a much more dramatic effect on reduced manufacturing jobs in America. The State of Missouri’s exports have increased 88 percent from 2002 to 2006. Missouri ranked eighth in the nation for percentage growth during that period. In addition to agriculture, our top exports were transportation equipment and machinery manufacturing — we’re making the equipment for other people to manufacture products overseas. With the dollar being low it’s more expensive to buy imports, but a lot cheaper to export, and 2008 should be a record year for exports. And, if the dollar stays low, it’s positive for Midwest states, where much of our nation’s exported commodities originate.

What else will 2008 bring?

St. Louis is just ending a robust period for new industrial construction. Developers will wait for the existing supply of new buildings to lease before starting additional buildings. There are numerous choices and demand is flat, so there’s downward pressure on lease rates. 2008 maybe the best year to be a tenant in this millennium and we expect to see large corporations take advantage of this and lock in longer term leases during this period of oversupply. Because the global market is changing daily, so are the users. Having a rail spur serve your building used to be an advantage, but now the rail lines are so busy, you may not be able to get service. Globalization is a driver to the industrial real estate market, which is not the case for other property types. Industrial real estate should outperform the real estate market as a whole going forward, and we see an active market while investors are delving into the operations of a given building and understanding how it’s positioned and its competitive strengths.

TERRY A. STIEVE, SIOR, CCIM, is a senior vice president, principal at Colliers Turley Martin Tucker. Reach him at (314) 746-0380 or tstieve@ctmt.com.