By: Dan Wendorf, Senior Vice President, Supply Chain and Logistics / Industrial at JLL
Across the country, the industrial market has been slowly recovering for more than four years. According to recent JLL research, “the national vacancy rate is moving closer to its cyclical low of 7.5%, which is expected to be reached by mid-2014.” In many markets across the Midwest, we are also seeing record low vacancy. In fact, Q1 2014 vacancy in Columbus was down to 6.1%.
Investment sale activity is also hot in the Midwest. And while this recovery is very positive, the changing market conditions can pose a challenge to industrial tenants, particularly those accustomed to approaching space decisions only a few months from lease expiration. The key to success for Midwest-based organizations is being proactive with your real estate strategy, and ensuring you are in a position to have a Plan A, Plan B, and a Plan C. This way, you can control your own real estate destiny.
Overall, tenants who stay up-to-date on current market conditions can be more strategic with their real estate decisions and avoid becoming a victim of industrial market conditions. Thus, I’ve outlined three tips to help you capitalize on today’s market conditions.
3 Tips to For Industrial Tenants and Space Seekers
Tip 1: Commit to a real estate strategy in advance.
We advise our clients to develop and commit to a real estate strategy at least 12-18 months before they hit a critical time (i.e. lease expiration). When you wait too long, you relinquish your negotiation leverage and negatively impact the business strategy. The landlord might bring in a new tenant if you wait until the last minute to make him or her aware of your plans, be in a position to raise rent above market, or push business terms that you otherwise would not agree to, and ultimately have a negative impact on the overall operations.
It’s easy to overlook the possibility of a move. Often, I have found clients in the middle of their fiscal year, only to realize that a relocation is required and the investment in technologies, systems or machinery are costly and unplanned. Leave room in your budget for the potential relocation of one, or multiple, facilities.
The bottom line: Don’t let real estate determine or trump your business strategy.
Tip 2: Stay up-to-date with the latest trends.
Staying abreast of the latest market trends helps to evaluate the real estate playing field. It’s important to keep tabs on what’s working and what’s not. Otherwise, it’s easy to fall behind competitors that lead with new, more innovative ideas. For example, the rise of ecommerce has completely shifted distribution and fulfillment center needs for retail users—does your industrial operation give you a competitive advantage?
How are the leading brands using industrial space? Some are building custom distribution centers from the ground up, while others are combining e-commerce needs with traditional brick and mortar stores. Some are having Third Party Logistics providers (3PL’s) control real estate and operations while others are doing it all in-house. The business model is changing. Stay in-the-know and maintain a leadership position in your niche.
Tip 3: Prioritize your negotiation points.
Negotiate appropriately and effectively with a strategic game plan. Prioritize your negotiation points by order of importance, and stick to this list. Don’t try to negotiate a term or clause that isn’t critical to your end goal that might ultimately result in you not achieving another critical business need. Being able to prioritize your real estate/business needs during negotiations will help you ultimately secure a real estate scenario that aligns with the business needs.
If you’d like a few more tips on strategic negotiation, I’d suggest you take a look at my JLL colleague, Dan Adamski’s (@DanAdamskiCRE) blog post, which offers three steps to guide the negotiation process.
Establish a leasing strategy in advance, stay informed of current market trends and prioritize your negotiation points to enable tenants and landlords to perform well in current market conditions—and ultimately achieve the best value for industrial real estate needs.
Interested in receiving more tips on making strategic commercial real estate decisions? Contact me for more information at firstname.lastname@example.org.
As part of the Jones Lang LaSalle Supply Chain & Logistics Group, Dan works to stay on the leading edge of the ever evolving supply chain world and the affects it has for his clients real estate needs. View Dan’s full bio to read up on his experience and recent transactions, or connect with him on LinkedIn.