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NREI Research Series
Part 2: Continuing to Build

Part 2: Continuing to Build

Most survey respondents said the level of development is about right for the sector, with very little fear that too much space is being built. In this year’s survey, 58 percent said the level of development is the right amount. An additional 21 percent said there is too little development occurring. Only 11 percent said too much development is taking place, with the remaining respondents saying they are unsure.

Those figures have moved since 2015. A year ago, 53 percent said the right amount of development was taking place and 27 percent said there was too little development. Two years ago, 50 percent said there was the right amount and 38 percent said there was too little.

Overall, 232.9 million sq. ft. of industrial product was delivered in 2016, according to Cushman & Wakefield. There is another 215.6 million sq. ft. of industrial product under construction.

Most recently, 15 markets saw net absorption increase, 13 saw construction rise and 19 experienced increases in asking rental rates, according to a recent report from real estate services firm NAI Global. Overall, 10 markets saw growth in all three areas, NAI researchers report. And 19 markets recorded positive absorption, with 14 also seeing drops in vacancy, indicating a national trend for industrial space surpassing supply, the researchers noted.

Respondents were also asked to estimate how much additional supply their markets could absorb. The majority (72 percent) said their markets could absorb additional supply equal to between 5 percent and 19 percent of current inventory. And 12 percent estimate the market can absorb new supply equal to 25 percent or more of current inventory.

An additional factor affecting supply in some markets is the conversion of old industrial boxes into other uses. Overall, 70 percent of respondents said that this activity is taking place in their markets. (That’s up slightly from 68 percent in 2016 and 64 percent in 2015.)

For example, Hamilton, NJ-based Modern Recycled Spaces buys falling-down, historic factory buildings with great character in declining neighborhoods, because they provide the right stuff for these types of conversions and can be had at a price point that keeps rents low, notes Max Popkin, director of leasing and marketing with the company. The firm’s 220,000-sq.-ft. Studio Park is an abandoned bottling facility in a gritty neighborhood of Hamilton, N.J., which happens to be near Princeton.

Modern Recycled Spaced transformed the building into an edgy, contemporary workspace, with a variety of shared amenities, including a gym, kitchen and café, indoor and outdoor spaces for socializing, ping-pong tables and conference rooms. Popkin notes that similar to co-working spaces, these buildings accommodate the needs of start-ups, allowing them to expand their space as the business grows.

Meanwhile, Read Goode, a principal in the Richmond, Va. office of property management and leasing firm Divaris Real Estate Inc., helped his client reincarnate a 1946 Binswanger Glass factory in the city as a multi-tenant project. Located in Richmond’s hip, historic Scott’s Landing district, the three-story, 87,000-sq.-ft. art deco building now houses multiple uses.

The net effect of this activity varies. Of respondents that said this activity is occurring, 40 percent believe it’s leading to a lower inventory of available space in their market. An additional 43 percent of respondents said the removal of old space is being balanced by new construction. And 17 percent said that new construction is outpacing the removal of old space, leading to a net growth of inventory in their market.

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