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2.25.2020

Industrial Strength: 5 Things you Need to Know About Industrial Real Estate

Industrial real estate is a segment of the commercial real estate market with its own unique set of issues that prospective tenants and commercial real estate professionals need to be keenly aware of. With that in mind, here are five keys to understanding those issues, and appreciating the ways that the industrial marketplace has changed—and will continue to change—in the months and years ahead:

A significant shortage

In the State of Michigan, as in many other markets across the Midwest and the nation, there is a significant shortage of industrial buildings. That shortage means that it’s more important than ever for industrial tenants to identify and partner with brokers who not only have industrial experience, but have an intimate understanding of the nuances and unique characteristics of the underlying local market. The days of a broker being able to log on to a database and send a client a list of 10 or more buildings that might fit their needs are long gone. Successful brokers today have to be closely attuned to what’s happening in the market—not just today, but for 6 months, a year and more down the road.

Scarcity and opportunity

A tighter industrial market limits opportunities and extends timelines. That dynamic is even more evident when the tenant has specific logistical or facility needs that must be addressed. For example, a hypothetical company looking for a 100,000-square-foot manufacturing space with certain characteristics required for their business (cranes, railway access, etc.), the chances are good that there simply isn’t going to be something available right away in the market that fits their needs. New construction is also less of a viable option than in the past. Not only would it typically take a minimum of 12-24 months to build something customized to meet their needs, but the rising cost of new construction has made this prohibitive for many/most industrial tenants in many/most markets.

Looking ahead

The need to plan ahead and look forward months or even years to find the right industrial opportunity means that successful industrial brokers are those that have proven to be highly skilled at planning and looking ahead. A good broker works proactively with their clients to start identifying potential opportunities early. The best have extensive knowledge of not only what the market looks like today, but what is coming up in the future. They know who is making changes, which landlords might consider selling in 6 months,  which tenants are expanding and contracting, and what facilities might be a good fit even before they hit the market. In other words, it’s not just about thinking ahead, but actively leveraging relationships and nuanced market knowledge to help unlock hidden and emerging opportunities that simply wouldn’t otherwise be accessible.

Environmental challenges and solutions

One thing that is important to understand about industrial is that logistical or regulatory environmental issues pop up more frequently than in retail or office environments. Navigating those hurdles requires industrial brokerage expertise. Michigan has some unique environmental laws and regulations, for example, that can facilitate successful transactions for environmentally impacted sites and facilities that might otherwise have been cost-prohibitive due to significant cleanup costs to be borne by the buyer.

Industrial staying power

To fully understand the industrial sector, we need to appreciate what’s happening in retail and office. Online competition has reshaped the retail market—permanently. Many big-box tenants from the past are never coming back. The office market has changed, as well. Increased access to powerful digital/mobile tools, elevated connectivity, and growing employer willingness to be flexible means that more people are working from home, or in alternative or unconventional workspaces or schedules. Industrial real estate, on the other hand, is here to stay. Even as manufacturers and logistics companies become more automated, there will still need for the infrastructure to support it. There is no work-around to manufacturing, storing and shipping goods and materials: you need space. And with logistics and distribution centers on the rise, the need for that space is only going to become more significant in the future.

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