DC Velocity - June 2015

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KTR Capital Partners, which controls 322 U.S. properties with 60 million square feet. In December, Singapore’s sovereign wealth fund paid $8.1 billion to buy Chicago-based developer Indcor Properties Inc., which had 117 million square feet under management.

Goosing the cycle is a change in
the leasing behavior of “mom and
pop”-type tenants. Until recently,
many cautious smaller occupiers
have taken on short-term extensions
to maintain flexibility, according
to Jack Rosenberg, national direc-
tor, logistics and transportation,
for Seattle-based Collier’s International,
which manages about 1. 7 billion square
feet worldwide. Now, emboldened by the
brighter overall outlook, they are commit-
ting to longer-term leases, Rosenberg said.

To no one’s surprise given the shift in fortunes, landlords’ asking rents are on the rise. Rent increases are in the 3- to 5-percent range, though specific increases depend on the desirability of the property and the market. JLL, which regularly surveys conditions in its top 50 U.S. markets, said its data at the end of the first quarter showed that rents were rising in each market.

An industrial parcel that might have fetched $2.70 per square foot in 2010 (net of taxes and other expenses) can command around $3.95 today, according to estimates by Collier’s. In markets like Southern California and the Dallas/Fort Worth “Metroplex,” rents can run as high as $5 per square foot. “There is real rent growth, and it’s as high as it’s ever been,” said Rosenberg.

FEWER GIVEAWAYS

Landlords are not only minting more coin, they’re also making fewer concessions and are stingier with incentives than they’ve been in years. In the bad old days, it would be commonplace for landlords to concede six months to up to one year of free rent just to generate occupancy. Tenants could also get thousands of dollars worth of improvements as sweeteners. Today, tenants will be fortunate to win two months of free rent. And improvements that might have been equal to $10 a square foot several years ago have been reduced to $3 to $4 per square foot today. Craig Meyer, president of JLL’s U.S. real estate business, said that incentives are down between 60 and 70 percent since the market has improved. In a growing number of cases, tenants are being asked to pick up the tab for specialized improvements to their space, according to Ranalli of CBRE.

Ranalli said most tenants that are doing well enough to make major investments in industrial space aren’t balking at the higher rents or the loss in negotiating leverage. In particular, e-tailers experiencing rapid growth will pay up for a