How to navigate today’s commercial, industrial real estate markets

Commercial and industrial real estate activity has remained very strong with no real end in sight. It has been a landlord/seller market for a while, but now it’s time for tenants/buyers to do their homework and bid aggressively before an attractive opportunity is lost.

“We are continuing to see more and more multiple offers,” says George J. Pofok, CCIM, SIOR, senior vice president for Cushman & Wakefield/CRESCO Real Estate.

“There has even been significant movement in the class C-type buildings that have previously been on the market for an extended time. This is because inventory levels are so low. Companies that need additional space may choose a less-than-ideal building since it is their only option.”

Smart Business spoke with Pofok about how to navigate today’s commercial and industrial real estate market in order to take advantage of available opportunities.

What are the real estate options today for a company looking to grow?
While new construction may cost $60 to $90 per square foot for industrial use, if a company is able to acquire a lesser quality building in the low to mid-$20s per square foot, and spends another $20 per foot to renovate, it’s definitely a savings. With that being said, those types of deals are becoming extremely scarce with recent activity.

What about new construction?
Given the tightness in the market, companies should explore new construction opportunities. While speculative new construction had been dormant during the last economic slowdown, over the past year or so there have been five new speculative construction projects with three additional projects under construction.

The market can even continue to support additional new construction projects.

The cost of new construction might be higher today than it is for existing buildings, but in the long run, companies may save on aspects such as costs for utilities and taxes.

What advantages might a speculative construction project offer?
The speculative product is more for the warehouse/distribution/light assembly type of operation rather than heavy manufacturing, but it is definitely a good option.

Buildings constructed today typically are more energy efficient, have higher ceilings, and more docks and drive-ins compared to those built 10 to 20 years ago.

While the norm in the past may have been an 18-foot ceiling, today’s buildings are being developed with 30 to 32-foot ceilings so companies can rack more product in a smaller footprint. For example, with an 18-foot ceiling, companies may have required 50,000 square feet of space. But if they can take advantage of the higher ceiling/cube height, they can reduce their footprint to 30,000 square feet.

What steps should a company take when exploring existing space?
Companies should do their homework before they get into the market. They need to secure pre-approvals from a lender and have completed their own internal analysis as to their specific facility needs — docks, drive-ins, ceiling height and perhaps a location analysis of employee drive times.

It is extremely important to start early. There is a longer lead time required for manufacturing operations vs. warehouse / distribution operations.

A manufacturing operation has to build inventory so that it can shut down and move equipment before it can ramp up production again, so additional time is needed. But a warehousing operation only needs a short amount of time to relocate racking and product to the new location.

In addition, once a company identifies a building that fits its needs, it should take action. The company can’t wait two or three weeks because that space likely won’t be available long in today’s environment.

How does a company prepare for competitive bidding?
The broker should advise the company that the market is tight and it should be ready to be aggressive with an offer once it has found the space it desires. The offer should also be as clean as possible — free of demands such as an extended due diligence period or a larger-than-typical share of the due diligence costs. A seller might not look favorably on those types of requests, so the fewer strings attached, the better.

Insights Real Estate is brought to you by Cushman & Wakefield/CRESCO Real Estate