Brokers Get Creative in Adding Industrial Space

Record low vacancies and soaring prices demand new strategies.

Written by: Michael Hoban, founder of Hoban Communications, Boston

With nationwide vacancy rates for industrial properties registering record lows and pricing for those assets skyrocketing, brokers and developers are devising creative strategies to meet the insatiable appetite for space fueled by the e-commerce boom and supply chain issues.

Rethinking Existing Space

“Every market in the country is critically low on available industrial product right now, so sales and leasing prices have increased dramatically across the board in the last three to four years,” says Richard Sleasman, SIOR, president and managing director with CBRE–Albany in New York. He adds that his industrial team is “trying to find ways to shake the trees to create inventory that might not be on the market but maybe should be.”

For example, the team is identifying owner-occupied industrial buildings that may be underused by their occupants. Investigative work includes reviewing lists of manufacturers at the Chamber of Commerce and making old-fashioned tour rides to industrial parks or individual buildings in core areas. The goal is to evaluate inventory—particularly buildings with businesses that have been operated by families for generations. “Second or third generations in a family business may not have the same strategic thinking for the business as their parents or grandparents did,” Sleasman says.

One such prospect was a family-owned building supply company in a 50,000-square-foot warehouse/flex building with a product showroom in a core location. Because most customers now view inventory online, the showroom and much of the building was underutilized. The brokers advised the owners that they could turn the building into an income-generating rental asset in a high-demand market or sell it outright at a greater value than the owners realized possible while operating their business in approximately one-third of the space in another building outside the urban core.

Empty interior of commercial building under construction

© Jung Get Ty/ Moment / Getty Images

Modifying Existing Assets

Brokers and developers are also modifying existing industrial properties to create additional space. Arlon Brown, SIOR, senior vice president for SVN Parsons Commercial Group in Boston, says these changes are being made in two principal ways:

  1. Removing the second floors of two-story R&D buildings
  2. Raising the roofs on single-story warehouse facilities to create high bay space

“Unlike an office building, a lot of these R&D buildings have heavy floor loads, typically six inches of concrete reinforced with rebar, so they’re well-suited for warehouse use,” says Brown.

Greg Hughes, construction manager at the Seyon Group, sums up the situation. “I’ve been in industrial real estate for my entire career. You have to get way more creative now in order to deliver industrial product.”

Editor’s note: This article was adapted from “Race for Space,” published in the spring 2022 issue of SIOR Report.

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