14C — April 26 - May 9, 2013 — Spring Preview — Mid Atlantic Real Estate Journal
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By William R. Waxman and Mindy Lissner, CBRE Occupier Strategy in a Changing Market N ew J ersey I ndustrial M arket
I
f the industrial market is any indication of our eco- nomic recovery, we’re well
industry. In almost every major city across the country we are seeing an increased demand for ClassAindus- trial buildings larger than 200,000 SF; a shortage of new product; rising rental r a t e s ; and landlords who are reluctant to give major concessions. Developers are responding with speculative construction, resulting in land sales being
back in vogue. Joint ventures are popping up between land- owners and developers and between developers and equity partners. Occupiers and tenants are now faced with rapidly increas- ing costs as landlords are deter- mined to eventually drive up rents after years of depressed values and high vacancies. Of course, this is all part of the natural ebb and flow of the commercial real estate busi- ness. But where does this leave the tenant? First and foremost, tenants need to understand the value
their signed lease creates in the capital markets. Cap rates are dropping to near-record lows in most major areas. Tenants that understand this, especially those with investment grade (or near-investment grade) credit stand to benefit greatly. The value of their lease as a com- modity, if negotiated correctly, can help them reap substantial rewards. When negotiating a lease, tenants need to look at the landlord’s point of indifference. There is a number at which a property owner should and should not make the deal. All
too often, tenants look at only the rent and free rent. There are many other buckets of money, both obvious and not so obvious, that need to be considered. For example, what’s in the base rent? What are amorti- zations costs? Where are the hidden fees? What does lack of vacancy and downtime mean to their landlord? Looking at these costs and multiple pools of money has enabled educated tenants to save millions of dol- lars. Companies looking for space are also returning to the region- al search. Quite often we hear that New Jersey is an ideal lo- cal for a Northeast distribution center. But when you look at the logistics model, it is necessary to evaluate alternatives and all associated costs including the real estate, labor, taxes and incentives. For these reasons, secondary and tertiary industrial markets are now being considered more than ever. When you factor the rent compared to drayage calculations, the result is that other areas may work. However, New Jersey contin- ues to offer accessibility to key ports, consumers, skilled labor and an excellent transportation network that serves the entire Northeast. Finally, and most important- ly, are the incentive programs that states have instituted. New Jersey has stepped up with its many new programs aimed at creating and retain- ing jobs. There are a number of recent transactions that have resulted in the creation of new jobs in New Jersey, including Peapod and Imperial Bag, both com- panies that selected Prologis’ Pulaski Distribution Center in Jersey City as their new home. As occupier costs continue to rise, it is important for tenants to be strategic and well-edu- cated when negotiating new leases. Fear not, there are ways to navigate around it! William R. Waxman is an executive VP at CBRE, specializing in national and international sale and lease transactions. Mindy Lissner is an exec- utive VP at CBRE, special- izing in industrial property acquisition and disposi- tion, and advising occupi- ers on streamlining their supply chain. n
on way to a c o m e b a c k . A l l a c r o s s the Un i t ed States , i t ’s evident that the industrial markets are pe r f o rmi ng better than
William Waxman Mindy Lissner
any other property class. Yes, this includes the multifamily market. Right now, industrial build- ings are the darlings of the
“The way a team plays as a whole determines its success. You may have the greatest bunch of individual stars in the world, but if they don’t play together, the club won’t be worth a dime.” —Babe Ruth
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