Posted on June 14, 2016 · Posted in Industrial / Flex, Investments, Land, Retail

The industrial market is booming on many fronts. But that doesn’t mean there aren’t real challenges as e-commerce changes the face of commercial real estate.

This Amazon warehouse in Ruskin, FL is one of many the e-commerce giant has opened in recent years.

This Amazon warehouse in Ruskin, FL is one of many the e-commerce giant has opened in recent years.

Jim Martell, president of Ridge Development, a private REIT in Chicago, sees pricing as the big issue today.

“The spread between the going-in yield and the exit cap rate in the industrial market is very thin.” Martell tells GlobeSt.com. “Maybe 50 basis points or even less in some cases where the developer will do it for a fee. This would require an industrial developer to have a core buyer as a capital partner.”

Meanwhile, attorney Michael Jones of Cole Schotz, a law firm that works with Fortune 500 companies in the Mid-Atlantic, tells GlobeSt.com the biggest challenges developers face today is coping with the shortage of vacant land while needing to construct larger buildings with more parking.

“Developers must be willing to take on more risk by trying to tackle environmentally challenged sites that they might have stayed away from in the past,” Schotz said, “and they must be able to entice tenants to want to lease these sites.”

Industrial developers also need to be more flexible in the way that they are designing build-to-suit buildings. Scott Marshall, executive managing director of industrial services for the Americas at CBRE, for example, tells GlobeSt.com developers have to be able to design and build an asset that can be used either for e-commerce or a normal distribution stream.

“You don’t want to build an e-commerce-ready building and have it be taken by a straight distribution user, because those e-commerce-specific improvements are going to go to waste,” Marshall explains. “Conversely, if you build a straight distribution building and an e-commerce user takes the space, sometimes you can’t go back.”

 

Source: GlobeSt.

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