Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/82355
be benefi ting from the pending expansion of the Panama Canal, Doremus speculates. Here are a few of the trends generating deals today, based on a recent survey of CCIMs. Denver is a great place to live, and businesses that support its grow- ing population are driving industrial demand there. Vacancy is less than 10 percent, according to Steve Poole, CCIM, vice president of industrial sales at Cassidy Turley Fuller Real Estate in Denver. From Denver northward, a thriving oil and gas industry has soaked up nearly all of the older industrial stock, says Mark Bradley, CCIM, SIOR, managing broker of Realtec Greeley in Greeley, Colo. Exploration companies and venders serving the sector are chiefl y interested in industrial buildings they can drive a truck into, with plenty of space for truck courts and outdoor storage. "Our vacancy rate has gone from 18 percent or so a year ago to 7 percent or 8 percent right now," Bradley says. "Absorption has been strong all along the Highway 85 corridor from North Denver to Wyoming." In Texas, industrial demand is strong in the Dallas-Fort Worth area to serve industries ranging from automobiles to call centers, food, importers, and security, says Jennifer Gray, CCIM, broker and managing partner for Northeast Tarrant and Denton counties at Bradford Commercial Real Estate Services in Southlake, Texas. Shannon Owens, CCIM, vice president of Glacier Commercial Realty in Irving, Texas, says a number of companies new to North Texas are leasing spaces from 20,000 sf to 30,000 sf while they test the market. Many of her technology and engineering clients have doubled their headcounts and square footage over the past 18 months to handle increased business. INDUSTRIAL INVESTORS GRAVITATE TO SECONDARY MARKETS Investors are increasingly seeking high-quality industrial assets in second-tier cities as an alternative to acquiring properties in primary markets where bidding wars have driven prices to unpalatable levels, CCIMs tell CIRE. In primary industrial markets like Chicago, investors are buying fully leased, well-located class A properties at less than a 6 percent capitalization rate, according to Kenneth Szady, CCIM, SIOR, executive managing director and head of the Midwest Capital Group at Newmark Grubb Knight Frank in Chicago. When cap rates fall below that 6 percent threshold, investors begin to either look for lower quality or less well-located assets in the primary markets, or they begin shopping for class A properties in secondary markets, Szady says. In either case, those investors will acquire assets in a cap rate range from 7.5 percent to 8.5 percent. That's based on Szady's experience over a 24-year career in which he has closed $7.2 billion in transactions, including two of the largest deals of 2012. This past summer, he represented the Gullo family in selling a 330,000-square-foot industrial portfolio in Elk Grove Village, Ill., near O'Hare International Airport, to Morgan Stanley. In March, he closed a 1.35 million-sf build-to-suit transaction for the Clorox Co. in University Park, Ill., on behalf of an institutional client. (Szady was executive director and head of capital markets at Cushman & Wakefi eld at the time of the March deal). Indeed, CCIMs in secondary markets with low vacancy rates, including Indianapolis, northern Colorado, Texas, and other markets with expanding regional economies, report strong investor interest in industrial properties. "Yields look pretty good here especially when coupled with the excellent story Indy can tell," says Jeremy Woods, CCIM, SIOR, executive vice president of Summit Realty Group in Indianapolis. "We are also seeing an appetite for class B value-add properties as the newer, more modern space is beginning to get frothy." At least for the next year or two — until construction can introduce new supply to the primary markets — investors will be active buyers in the secondary markets, Szady predicts. "We're just opening the fl oodgates into the secondary markets," he says, "and it's the beginning of the cycle." CCIM.com September | October | 2012 29