MOUNTAIN VIEW, CA—Does the long real estate cycle show any signs of slowing? Is the lack of flex and industrial inventory driving construction? Are tenants getting smarter about space? Are owners getting more creative? Griffin Cogorno
, director of client services at Unire Real Estate Group
discussed these and other topics in this recent exclusiv
GlobeSt.com: Why do you predict there will be no signs of slowing for the next 18 to 24 months?
We are in a market that has single digit vacancy across most sectors. There is a lack of well-located class-A product especially in industrial throughout California, especially in the Bay Area. Along with little to no vacancy, there is a tremendous amount of capital trying to be deployed. This, added to the scarcity of product, will continue to push the market to lower cap rates and higher asset values. I read an article that sub-3% cap rates are going to be the new normal. The pressure to invest capital is a direct correlation of where cap rates are headed. Rents on industrial assets continue to rise across infill and secondary locations as companies need to be in certain locations and right now there are not many options.
The e-commerce and logistics companies are changing how we build and own industrial. The trend in e-commerce is only going to accelerate. Consumers want goods faster and faster, and logistics companies need to be close to their deliveries. I would be long on last-mile delivery and reverse logistics.
I am not so bullish on the retail and multifamily sectors. I don’t see how some markets can absorb the amount of new inventory hitting the market and I think retail is changing faster than we can comprehend.
GlobeSt.com: How much is a lack of flex and industrial inventory driving construction across the state?
One of the largest reasons for a lack of inventory is a direct correlation to the lack of available land and opportunities. Developers are delivering new product to the market, however, the demand continues to outpace the supply. We have seen some enormous absorption in recent years and the demand continues to stay very strong.
GlobeSt.com: What examples have you seen where tenants are getting smarter about the space they’re using?
Tenants are able to do more with less, especially with creative space. Creative layouts can accommodate more people with less square footage. Common areas, and outdoor balconies and courtyards are adding square footage which can accommodate employees that historically would occupy a break room or a private office. Some tenants are moving into industrial warehouse offices in order to decrease their footprint on office. We recently had a credit tenant occupy an industrial asset for both their distribution component and their back office. Industrial isn’t just for the down and dirty anymore. We are building industrial to class-A office standards for some clients. The new industrial houses both the warehouse workers, marketing, back office, IT and executive teams.
GlobeSt.com: How are owners getting more creative about the real estate they’re delivering?
Owners and developers are starting to develop product 10 to 15 years in advance. Industrial developers are going to be building to 40-foot clear very soon. Developers are trying to build buildings beyond the tenant’s ability to occupy. I recently heard Brandy Birtcher of Goodman Birtcher
talk about the future of industrial. Birtcher sees 40-foot buildings being the next industry standard─40-foot clear is big! These buildings have never been built but we need to think of how buildings will be utilized in the future. These assets will be able to build a mezzanine level and double the rentable square footage of a 1 million square foot asset to 2 million square foot. This is unheard of in US industrial but as an owner, being able to collect rent on 2 million square feet rather than a 1 million square feet footprint is something revolutionary. Now you are changing the game.
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