Occupancy and Construction Costs Taking On Increased Significance for Site Selectors
As the economy continues its downward spiral, site selectors are paying closer attention to occupancy and construction costs, and the results of Area Development's 2008 Corporate and Consultants Surveys reflect their concerns.
Jennifer LeClaire (Dec/Jan 09)
(page 2 of 2)
site selectors are still exploring build-to-suit options - if the terms
are attractive. Risk management is key when few want to commit to
long-term agreements. In a tenant's market, many may prefer to lock in
favorable lease rates than build-to-suit, according to industry
watchers. What's more, relatively few build-to-suit transactions can be
completed in today's environment due to the credit crunch. "If a
company is selecting a site today, existing building owners are highly
motivated to do what it takes," says Brown. "If a company has the means
or credit to finance new construction, construction pricing is at its
lowest point in many years."
Of course, the build-to-suit option
also depends on company's culture. Some companies will only entertain
options that allow them to own the real estate, but many - especially
public companies - prefer lease arrangements. Cranmer reports a
tremendous slowdown in construction and in location decisions.
Corporations, he says, are guarded about making long-term decisions in
the current client. And the build-to-suit developers can't get the
financing they need to complete projects. "I have seen more projects
put on the shelf in the last two years that at any time I can
remember," he says. "And I've been doing this 30 years."
may be an option for some industrial site selectors that do need to
expand but don't have the access to capital to build a new facility,
according to Ronald Pollina, Ph.D., president of Pollina Corporate Real
Estate in Park Ridge, Illinois. "Sale-leasebacks are a creative
financing vehicle and it doesn't have to be for an existing building,"
he says. "We have structured sale-leasebacks for buildings that are
going to be custom-built for clients that allows them to get the best
of both worlds."
|Corporate Survey 2008
Combined Ratings* of 2008 Factors
|Site Selection Factors 2008
|*All figures are percentages and are the total of "very important" and "important" ratings of the
Area Development Corporate Survey and are rounded to the nearest tenth of a percent.
upfront investment costs is the name of the site selection game in the
near-term. Opportunities that reduce upfront cash outlays will pique
the interest of site selectors, according to Lawrence Moretti, a senior
team member of Deloitte's Global Location Strategies and Corporate Real
Estate Practices. "Credit is a lot tighter," he says. "Reducing
occupancy costs is a key consideration."
costs could mean going green for some industrial sites. Greener is
better, and that trend will continue to be more pronounced going
forward, according to Ragsdale. While companies are still looking for
such amenities as wider truck courts, off-dock wall trailer parking,
off-street access roads to accommodate truck queuing prior to entering
the property, and controlled access, he says that concerns over the
environmental impact of these facilities is growing rapidly: "Many
companies are looking at cost-effective ways to reduce carbon
footprint, such as employing the use of bio-swales to capture
groundwater runoff, using fluorescent lighting with motion sensors, and
increasing the R-values of insulation in cold-weather climates."
big "X factor" is the economy. So site selectors are facing business
questions more than location questions until the economy settles down.
In the meantime, Cranmer is seeing more financial feasibility of
projects than in the past. "Due diligence is more important and more
rigorous than ever," he says. "We've gone from the expansion mode we've
experienced for the past 15 to 20 years and we're retrenching as we
move to contraction mode. There will still be relocations, but it's a
new world out there."