modern well-equipped building to support their fulfillment operations, he said.
“Tenants have accepted this, so you pay
the price to get the deal done,” he said.
That doesn’t mean tenants are jumping
at the first property they see. A multiyear
commitment, combined with the expense
of leasing a 500,000 to 1 million-square-foot building that may cost between $50
million and $100 million to construct, is
cause for tenant selectivity. Increasingly,
cream-of-the-crop “Class A” buildings
are being built with 36 feet of “clear
ceiling” height, up from 32 feet, in order
to accommodate e-commerce companies
that want multistory mezzanines and
higher picking modules, according to
Ranalli. Top properties are also coming
equipped with deeper truck courts for
better vehicle maneuverability as well as
more trailer positions and additional car
parking to accommodate the influx of
workers and equipment, he said.
Lease durations have also been lengthened as landlords look to lock in better contract terms. Ranalli said landlords
increasingly insist on a minimum five-year commitment. At the depths of the
recession, the best landlords could hope
for were two- to three-year terms, he said.
Ironically, longer lease durations may be
a better deal for tenants occupying cus-tom-designed properties if they are putting up stakes in markets with significant
construction activity that might lead to
oversupply, according to Jim Clewlow,
chief investment officer of CenterPoint
Properties, a firm that specializes in developing transportation and logistics projects.
The roster of industrial property executives is stocked with folks who’ve been
in the business for decades and have seen
their share of downdrafts. Another down
cycle awaits, but it’s unlikely to occur
before late 2016 or 2017. Spec development, which has remained relatively
subdued even as the overall market has
strengthened, is starting to accelerate. The
Inland Empire has 20 million square feet
of property going up. About 8. 4 million
square feet are under construction in
Eastern and Central Pennsylvania. The
Pennsylvania properties are expected to
be delivered by the end of this year or
early next.
At some point, demand will reach
a crescendo, developers will scramble
like the dickens to loosen what’s been
a tight supply market, the U.S. econ-
omy may slow, and the flood of space
will then put tenants back in the
driver’s seat. JLL’s “property clock,”
which analyzes its 50 key markets at
their various cycles, shows that mar-
kets like Dallas-Fort Worth, Atlanta,
and California’s Silicon Valley are
peaking. However, those markets are
in the early stages of the cycle. Until
the clock runs out on those and other
big markets, landlords will remain
firmly behind the wheel.
