Increasing Signs of Life in Industrial CRE
Over the past 12 months, there have been increasing signs of life in Industrial CRE; however the stats aren’t following the same trends as Office or Retail.
According to the National Association of Industrial and Office Parks (NAIOP), following a solid 100 million sq. ft. of absorption in 2012, the US will experience approximately 425 million sq. ft. of positive absorption between 2012 and 2014.
The increase in warehouse absorption is due to number of factors including:
- A reduction in gas and electric costs that is stimulating an increase in domestic manufacturing
- Proliferation of e-commerce that is increasing the amount of goods stored in a warehouse vs. a traditional retail location
- Recent environmental disasters that had a larger than expected impact on supply chains is driving companies to keep more supply on hand in domestic warehouses
- Increased cost of transportation compared to industrial real estate for companies, combined with tightening driving laws, is resulting in companies using multiple warehouses in strategic locations vs. one centralized warehouse
The Industrial growth differentiates from Office and Retail in that tenants are favoring class B over the traditional Class A locations.
Our team is finding that more and more clients are choosing the lower cost options in lieu of expensive, top of the line Class A industrial locations as the facilities meet their needs and offer vital cost savings. As we conducted market research, we found that this trend holds up across the US.
Industrial locations that experience the highest tenant retention rates are often older buildings without the fancy additions, lighting, exceptionally tall ceilings or high price tag that goes with it. Since industrial locations are not typically customer-facing but more focused on efficiency and effectiveness, it makes sense that clients are prioritizing the operational elements over the cosmetic.
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