That means, of course, the pool of buyers remains as deep and
broad as ever.
Ullrich says that reconfiguration of retail’s supply chain is driv-
ing demand for both warehouse and distribution space. Also, insti-
tutional capital has fallen in love with the asset class and are coming
into the space in droves, driving down yields. “I never thought I’d
hear ‘Greenville-Spartanburg’ as a buzzword on the streets of New
York City, but quality product in markets of all sizes can be really
attractive in today’s market.”
Also, he adds, there is a new demand driver that is coming from
1031 exchange buyers who have spent decades buying low cap rate
retail properties and are now growing weary of negative headlines.
“The doom and gloom—whether real or perceived—surrounding
portions of the retail sector is causing some private buyers to
migrate to industrial, which can offer better yields,” he says.
MARKET BY MARKET
Going beyond these top-level observations, there can be significant differences in demand and supply drivers on a market-by-market basis.
For example, Cushman & Wakefield’s recently released New
Jersey market report showed that existing class A industrial opportunities remain scarce, and many tenants are opting for new development. In the report, Jason Price, Cushman & Wakefield’s Tri-State Suburbs research director said that proposed and under
construction warehouse sites accounted for 43% of the first-quarter
On the other side of the country, logistics users aren’t just driving industrial construction in Phoenix, they are driving a niche
industrial market. According to JLL research, mid-bay industrial
product accounts for nearly half of the total construction pipeline
in Phoenix. JLL noted that there are currently 23 mid-bay industrial facilities totaling 2. 5 million square feet under construction in
Phoenix. This is 42.1% of Phoenix’s total construction pipeline.
This product type ranges in size from 50,000 to 200,000 square
feet, JLL VP Kyle Westfall recently told sister publication, GlobeSt.
com. “The product offers flexible space sizes, and with that, the
product has great building functionality,” he says. “The functional-
ity, like quality clear heights, truck maneuverability, dock-high load-
ing and high parking ratios, of industrial product is becoming
more important to occupiers. That allows for a multitude of differ-
ent kinds of users to occupy the space.”
The Southeast, Stan Johnson’s Ullrich says, is in favor right now
due to high population growth, job growth, and manufacturer
relocations. Markets like Charlotte, Raleigh-Durham, and the
aforementioned Greenville-Spartanburg, he says, all continue to
grow and attract both private and institutional capital.
Florida has also always been great because of its 0% personal
income tax, he adds. “The Pacific Northwest is also very popular
with investors, particularly Washington with no state income tax,”
he notes. “Yields here are very tight. And while the Midwest may
not present the population growth story, this region can offer
higher yields for investors too.”
There are many examples of industrial redevelopment hap-
pening all over the country, but it is especially prevalent in
Southern California, where ground-up development faces numer-
ous obstacles including a scarcity of developable land, industrial
areas being rezoned for multifamily in light of the housing crisis,
and the high costs of construction labor, explains BLT Enterprises’
Huberman. “SoCal also sees strong demand for creative office
and industrial space due to the entrepreneurial nature of its busi-
In addition, Huberman says that Southern California’s extremely
low industrial vacancy rates coupled with high demand are driving
up rental rates in even the most basic industrial properties, so users
are enthusiastic about space that not only also offers them what
they need to compete (high clear heights, ESFR sprinkler systems,
amply-sized truck courts, etc.), but also looks great and functions
better than basic space—all at an affordable price.
“This demand is exacerbated by the extremely tight vacancy and
availability of industrial square footage—not just in San Diego but
in all SoCal markets.”
All of these trends are overlaid by one overarching factor: the
dizzying growth of e-commerce and its influence on the industrial
For the industrial sector, the main markets have traditionally
been “path of goods” markets, notes Spellman. “In recent years,
the e-commerce revolution, which has given rise to same- or next-day shipping, has put a focus on being closer to end consumers.”
Spellman explains that markets that were ignored 15 years ago
are now on the radar. Boston, he says for example, historically was
not a place where institutional investors wanted to deploy capital
but is now a market that’s seeing increased activity.
A TENANT-FOCUSED ORIENTATION
Without a doubt industrial remains a landlord’s market, but that
doesn’t mean landlords are ignoring tenant tastes and demands.
To the contrary—and especially now as supply is beginning to
catch up—the industrial sector is more tenant-focused than ever
before, Huberman says. “Users are seeking better-designed spaces
that not only function more efficiently to accommodate increased
technology and automation in industrial processes but are also eye-
catching and offer updated features and services.”
The “plain vanilla” buildings with stark interiors of past eras are
rapidly being replaced with sleek, modern versions that offer strik-
ing design features and state-of-the-art amenities—much like
today’s creative-office space across the country, he continues. “In
short, these are not your father’s industrial buildings.”
The building in Vista, CA, was no anomaly for BLT Enterprises.
Huberman says his company’s strategy to meet the demand has
been to renovate older properties to provide the updated ameni-
ties users want, repurposing traditional warehouses into new and
fresh uses, and constructing new facilities that incorporate current
As another example, his company is completing a series of renovations and upgrades of 5490 Darwin Ct., a 60,000-square-foot
industrial building in the coastal North San Diego submarket of
Carlsbad. The improvements include new roof and skylights, additional perimeter windows, a new glass balcony, and the removal
and replacement of lobby stairs. The changes also extend to the
property’s esthetics: the landscaping has been upgraded with
drought-tolerant plants that accentuate the outdoor employee
patio and activity area.
“Being sensitive to users’ needs and working with them as their
needs shift helps us to retain tenants for the long term,” he says.
“Whether we satisfy those needs by renovating, negotiating a lease
for them in a different property we own, or constructing brand-new
ground-up space, paying attention to tenants and maintaining
strong business relationships with them keeps us on top of current
trends and allows us to respond to them quickly.” ◆