By ROBBIE WHELAN
Eight feet of added ceiling height may not seem like a lot, but for warehouse builders, the extra clearance can be the difference between an empty building and one that attracts a tenant such as Walmart.com or Amazon.com.
Real-estate firm Prologis Inc.’s latest project, a one-million-square-foot warehouse in Tracy, Calif., will boast a 40-foot-high ceiling, 25% taller than the typical 32 feet. The project isn’t pre-leased, making this the first speculative building of such dimension that the company has built.
Prologis executives said it is going bigger to tap into the e-commerce boom, which is changing the way industrial properties such as warehouses and fulfillment centers are built. E-commerce retailers need more space than do wholesalers that ship goods in bulk to stores, because they transport a vastly wider variety of products in much smaller batches.
“If your stapler breaks, you go online and you order a single stapler. If you’re delivering to OfficeMax, you don’t go into a warehouse and pull one stapler off the rack, you pull out a whole pallet of them,” says Scott Lamsen, president of Prologis’ northwest region.
As a result, e-commerce companies need workers to pick out and pack each product by hand. They often build multiple mezzanine levels and racking systems known as “pick modules,” which are typically about nine feet high. Ceiling heights of 40 feet, rather than the industry-standard 32 feet, allow a distributor to build three levels above the ground floor instead of two, and still leave room for light fixtures and fans.
The share of retail sales conducted online has been growing steadily since at least 2005, clocking in at 6.7% in the fourth quarter, according to the Census Bureau. The increasing sales online stimulate the need for more spaces to stock, sort and pack shipments to send to shoppers.
Most warehouse construction in recent years has been of structures with ceiling clearances of 28 to 36 feet. Since 2011, of the 554 large warehouses built in the U.S., 89% have had ceilings between 28 and 36 feet high, according to brokerage CBRE Inc. Only 52, or 9.4%, have had heights of 36 feet to 40 feet, and only 11 have had heights above 40 feet.
Consultants and executives at logistics firms say larger warehouses with taller ceilings are becoming more prevalent.
Read entire WSJ article here.
Address: 700 Jarvis Drive, Morgan Hill, CA
Seller: Pacific Resources Jarvis Inc.
Buyer: Kotai Investments LLC
RBA SF: 43,000
Lot size: 3.02 AC (131,551 SF)
Selling price: $5,000,000 ($116.28/SF )
Type: Industrial – Warehouse
By Paul Bubny
Spring may be just around the corner, but in the view of investors, it’s already here. Marcus & Millichap said Monday that its quarterly Investor Sentiment Survey Index has reached a new high, with the eight-point increase from the prior quarter to 187 reflecting a level of investor confidence not matched in the survey’s 10-year history.
Sixty-eight percent of respondents to MMI’s latest survey plan to increase their holdings in the coming year by an average of 15%. An additional 26% expect their investments to hold the line during 2015, while just 6% said that their real estate portfolio may decrease over the next year.
MMI attributes the positive sentiment to several different factors. First and foremost, it reflects continued performance improvement across all property types. “The trends are building momentum, especially for the property types that have lagged behind through the recovery so far,” says Hessam Nadji, chief strategy officer and director of specialty divisions at MMI. “Those sectors, particularly office and retail, are now beginning to catch up,.”
Slightly more than half the respondents, or 51%, either strongly or somewhat agree that property fundamentals will improve faster over the next 12 months. Twenty-seven percent were neutral in their views, while the remaining 22% do not believe that improving fundamentals will accelerate.
Against a backdrop of still-low interest rates, strong job growth and retail sales growth in the US,, a majority of commercial real estate investors expect the value of properties in their portfolios to increase over the next 12 months. Especially optimistic re multifamily investors, with 78% expecting values to increase this year, by an average of 5.3%.
In the industrial sector, 68% of survey respondents believe the value of their properties will increase, with an average 4.4%. Similar sentiment is expressed by retail investors: 68% expect a 5.8% in value over the next 12 months. For the hotel sector, 63% of respondents expect values will increase by an average of 5%.
Read entire GlobeSt article here.
Well, now that 2014 is in the rearview mirror, we’ve been busy crunching the numbers from the final quarter of the year. Overall, it was an impressive year with leasing and sales figures reaching all-time highs. Competition is up and therefore cap rates and leasing vacancies were down. Here’s an excerpt from the report:
The San Francisco industrial market stumbled in the fourth quarter, with -98,896 s.f. of negative net absorption increasing vacancy to 4.2%. Despite fourth quarter negative absorption, 2014 saw 58,808 s.f. of positive net absorption. Asking rental rates surged up towards prerecession highs, breaking $15/s.f. for the first time since first quarter 2008. The larger industrial leases remain in the San Mateo County submarket, where larger tenants are accepting a decentralized location to find adequate square footage. In San Francisco this quarter, industrial leasing activity was less than a quarter of the average from the past year, with low vacancy stifling deals due to limited space options for lease.
Read entire report here: industrial-market-research-san-francisco-2014-4q
Address: 33306-33580 Alvarado-Niles Rd, Union City, CA
Buyer: Terreno Realty Corp
RBA SF: 170,086 (between 3 buildings)
Lot size: 10.04 AC (437,342 SF)
Selling price: $23,800,000 ($139.93/SF )
Type: Industrial – Warehouse/retail
This is another example of the strengthening of the industrial markets on both sides of the bay. Kidder Mathews sold this building to Westcore in April of 2012 for $13 million, which now seems like a bargain. It is a strategic piece for Terreno however, since they are also purchasing the new development directly behind this acquisition upon completion of the new construction for a reported $37.2M. The adjacent site was formerly a SF Chronicle paper plant.
Address: 1065 E. Hillsdale Blvd, Foster City, CA
Seller: Marin County Employees Retirement Association
RBA SF: 115,511
Lot size: 5.13 AC (223,288 SF)
Selling price: $39,500,000 ($341.95/SF )
Type: Class B Office
4-story office building.
By Paul Bubny
The third quarter marked another chapter in the ongoing success story of the industrial sector across the US and Canada, and Colliers International doesn’t see the sector losing its mojo anytime soon. With a 21-basis point decline in vacancy during Q3—to 7.5% in the US and 4% in Canada—and with the quarter’s 64.8 million square feet of absorption representing the second-highest quarterly tally since the recovery began, clearly the momentum is there.
And so it will continue even as more new product comes on line, Dwight Hotchkiss, national director of industrial | USA for Seattle-based Colliers, tells GlobeSt.com. “Although the rate of construction will increase in 2015, we predict strong, positive absorption,” he says.
“The second half of 2014 has seen a visible increase in activity for product between 50,000 and 250,000 square feet and, along with anticipated demand in big box, will drive the absorption numbers,” adds Hotchkiss. Regionally, the strongest markets for absorption in both Q3 and year-to-date included Chicago, Dallas-Fort Worth, Atlanta, Los Angeles and the Inland Empire, Houston, Indianapolis and Stockton/San Joaquin County, CA.
Colliers’ Q3 industrial report notes that development activity increased last quarter in both the US and Canada to a total of 155.9 million square feet under construction, up from 142.9 million square feet in Q2. “The absorption-new supply ratio increased slightly to 1.7:1.0, from 1.4:1.0 in Q2, but has come down significantly from more than 2.0:1.0 in 2013,” the report states. “This will be a key metric to gauge the supply-demand balance as development activity increases further” in subsequent quarters.
Where that development occurs may shift slightly, but only slightly, thanks to the uptick in demand for same-day delivery by shoppers buying online. “The strongest demand and development will continue to be in the major markets, which can service the major population centers which can be delivered same day,” Hotchkiss says, adding that “some next-tier cities will see some development as more and more retailers look for sites.”
Not only development activity has been strong: investment sales have exceeded $11 billion in each of the past six quarters, the longest such streak since Q1 2008, says Colliers. The average cap rate decreased to 7.3% in Q3, the lowest since Q2 ‘08, and cap rates for the top quartile of warehouse properties are noticeably lower, averaging 5.8% during the quarter.
Read entire GlobeSt article here.
We’ve seen a dramatic increase in the past quarter for owner/user purchases while leasing has been steady, but not crazy. This mostly due to the fact that there is very little product on the market for lease. Here’s the summary for the quarter:
The San Francisco Peninsula saw 124,038 square feet of negative net absorption this quarter, and 257,299 square feet of gross absorption. The market continues to stay productive with deals of all sizes completed throughout the Peninsula industrial market in the third quarter of 2014. San Mateo County experienced minimal occupancy losses as well which is not due to a lack of demand on the Peninsula, but rather a shortage of quality available space.
Read entire report here: industrial-market-research-peninsula-2014-3q