The Beat Report

Industrial preview, Part I: A potentially sticky situation Coming up next month, we'll take a look at industrial markets on a nation-wide scope. But before you get to the meat of the story, I'd like to share a few appetizers, a few of the highlights and rumblings that I have heard while working on this story over the past few months. Look for another preview in our second October edition.

We will look at e-commerce as one of the primary, emerging trends that is affecting industrial development. Some have estimated that 100 million sq. ft. of industrial space needs to be built to quench e-commerce companies' warehouse and distribution thirst. Duke-Weeks Realty Corp. vice chairman Thomas Senkbeil expects e-commerce to increase demand for warehouse space as long as no one develops Star-Trek-like technology.

"We're going to see tremendous growth in warehouse space as e-commerce grows at the expense of retail space," says Senkbeil. "The Web is e-commerce's retail outlet. Until somebody figures out how to e-mail peanut butter, we're in good shape.

"When they get to that stage, we're all out of business," he adds. Never one to shy away from a contrary view, AMB Properties president and CEO Hamid Moghadam expects fewer, if drastically different, industrial buildings. Still, many expect e-commerce companies and their logistics providers to seek development that can handle their high-tech needs.

"The bottom-line impact on industrial real estate is that you probably need fewer industrial buildings and less square footage devoted to industrial distribution use," he says. "But the nature of the square footage will be very different than the old square footage. The old square footage had a high storage component where goods just sat around a warehouse for long periods of time. The new economy has a much greater need for what we call 'high throughput space' where storage is not the most important function, but throughput and distribution are the important functions that take place in these buildings.

"As a result, buildings are going to need to be more flexible and designed for faster movement of goods as opposed to the old days where they have to be designed for minimizing storage costs," he adds.

Beat 2: Industrial Preview, Part II: Some like it private As a precursor to November's industrial review, this month I wanted to offer a little preview so you could brace yourselves for what, hopefully, will be an enlightening discourse. One of my questions was inspired by a Wall Street Journal article that discussed the frustrations many REIT executives face as real estate companies continue to get accustomed to operating as public companies.

With REIT shares lagging, I could not help but ask private developers what they are able to do right now that their publicly held counterparts might have trouble pulling off. Greg Gregory, president and CEO of Atlanta-based Industrial Developments International (IDI), was quick to answer.

"I can ignore Wall Street, and I get great satisfaction in doing that," Gregory says with a laugh. "I don't give Wall Street a second thought. In fact, I don't give them a first thought.

Still, IDI owns shares of many REITs. "That's not to say that being a public company is not the right thing to do because there are a lot of advantages to, being a public company," Gregory continues. "It's just something we've chosen not to do. Well managed REITs - by good real estate people - are a good, long-term investment."

Tom Boyle, vice president of The Alter Group, Chicago, pointed to the mountains of capital available to private developers with a proven record.

"A private developer with a proven track record has [better] access to capital, so we can make deals happen," Boyle says. "Given our financial strength, we're able to go and take down land and run a number of different disciplines internally along the same time frame for the right client. We can really shorten the development schedule."

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