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
[email protected].