Legacy Flex Industrial Advantage
What a difference a decade makes. It was 2008 and the flex industrial real estate market was not exempt from the same exposure as the mass market. The exposure was the result of financial markets in complete turmoil. Consequently, flex industrial inventory was robust and many sellers were happy with any offer at all as the ability to finance such investments was very limited. Basic economics of supply and demand diminished values greatly. All new projects and developments were scraped and most in the industry were simply trying to survive.
As time went by and federal bailout and stimulus took hold, we slowly reestablished some stability. However, that stability did not stimulate the revisited process for building new flex industrial product.
Process and development was devoted to the bigger box distribution centers as America finally began to take foothold of the simplicity of on line ordering and subsequent home delivery for many types of products.
Tale of two scenarios
In what has become a tale of two scenarios, we jump to 2018. The common denominator is the development of new flex industrial product remains very limited while the demand for such product in general has increased exponentially. Preexisting flex industrial inventory value has appreciated at a rate greater than that of all other product lines with the possible exception of big box distribution.
Many businesses support the larger 3PL providers and need adequate warehouse space to do so, in addition to operational businesses themselves. Simple requirements of 25k and 50k square feet remain in demand and often unfulfilled.
While there are factors that are taken into consideration with that sale and lease of any building, the market will always maintain its own equilibrium. In 2008, a legacy industrial flex building would general lease for $3.50 – $4.00 per square foot and a sale prices would be in the $35.00 per square foot range. Today, the same space leases for $5.50 per square foot and the sale prices are in the $60.00 per square foot range.
The trend will remain the same in the foreseeable future as new flex industrial products remains limited. Any new product is underwritten at $100.00 per square foot, considering soft costs, NPDES, HOP, construction and any and all remain regulatory and municipal requirements for approvals. As labor and material trends remain on the existing path, expect legacy flex industrial product to gain at the same pace. To many, $60.00 per square foot is $.60 on the dollar for those of us that are inclined to remember the past.