Top Site Selection Factors: Available Buildings & Shovel-Ready Sites
Many companies have been standing pat, watching and waiting for signs that the economy, or activity within a particular sector, is finally beginning to improve. When those indicators emerge, companies want to be in a position to pounce on opportunities before they disappear.
Beth Mattson-Teig (November 2011)
"The Top Site Selection Factor series outlines the factors that ranked high in importance by the executives responding to Area Development's 25th Annual Corporate Survey. Find out why and how these factors should be evaluated in your next move...
Company cycle times and the general volatility in business today that produces these cataclysmic changes have caused companies to have to make business moves on a much faster timetable," says John Jacobs, senior vice president at Richardson Economic Development Partnership in Richardson, Texas. "It is just endemic of our economy these days that those very quick changes need to be made."
The desire to get a jump on competitors and take advantage of favorable real estate rates may be further elevating the importance of available buildings and shovel-ready sites. According to the 2010 Area Development Corporate Survey, 81 percent of respondents rated the availability of buildings as important or very important. Although being able to tap an existing inventory of buildings typically ranks among the top 10 corporate site selection criteria, what is notable is that the response rose 5.3 percent in importance compared to the previous year's survey. Separately, nearly half of the 2010 respondents said the existence of a shovel-ready site was very or somewhat important.
"We're still seeing a lot of companies tightly manage their capital expenditures. Many decisions have been delayed on new facilities," says Michael Wyatt, executive director at Cushman & Wakefield of Texas, Inc. in Dallas. Clearly, that is creating some pent-up demand. Mergers and acquisitions also are spurring companies to review their overall real estate strategy, and there are still those firms that are "bucking the national trend" and are in a growth mode, adds Wyatt. In addition, the desire to consolidate and create greater efficiencies is continuing to drive demand for both existing and new space in the current market.
Ample Supply of Space
Companies are clearly taking advantage of the large inventory of available space in many markets to make some big moves. Earlier this summer, for example, Ericsson announced that it would consolidate its Dallas-area operations within the former Nortel Networks campus in Richardson, Texas. The telecom firm had already leased 200,000 square feet at the campus. In addition to renewing that lease, Ericsson grabbed another 260,000 square feet of space.
"That move was directly due to the availability of that large block of space that allowed the company to consolidate workers from multiple locations to one facility," says Jacobs. The facility will now house about 2,500 employees, which makes Ericsson the fourth-largest employer in Richardson. The Nortel campus was also attractive because the space came equipped with some specialized buildout for R&D use. Having that infrastructure already in place allowed the firm to save a significant amount of money because they didn't have to replicate that buildout in a new property, adds Jacobs.
Companies certainly have a wide variety of available buildings to choose from these days. National office vacancies reached 17.3 percent in the second quarter, while the industrial vacancy rate declined slightly to 9.8 percent, according to data from Grubb & Ellis. Further, that surplus supply of space that still exists in many markets can translate into significant savings. Companies are still finding steeply discounted rents among distressed properties that are vacant or operating with high vacancies.
Asking rents for suburban office space have dropped 10 percent from a peak of $29.33 per square foot in 2008 to $26.93 in the second quarter. Asking rents for general industrial space have been discounted 14 percent from a peak of $5.75 in 2008 to $4.96 in second the quarter, according to Grubb & Ellis.
The dip in construction activity in recent years also has produced a bigger inventory of building sites. Speed can be a big selling point when it comes to sparking activity. Companies want more than a raw piece of land. They want a shovel-ready site where development won't get mired in a lengthy approval or preparation process. Most shovel-ready sites have already moved down the path in terms of securing entitlements, land assembly, and environmental remediation.
"We have found that certainty of move-in date is a very important consideration to prospective tenants. So having a site that is shovel-ready is a definite advantage," says Lyneir Richardson, CEO of Brick City Development Corp. (BCDC) in Newark, N.J. In fact, the BCDC is using shovel-ready sites as a critical component in its economic development strategy.
The BCDC is aggressively working to market and lease industrial sites that are "actionable" and attractive. For example, the BCDC is marketing a site in the city to distribution companies. The city-owned site is accessible via several major thoroughfares and also is located minutes from downtown Newark, the seaport, and Newark Liberty International Airport. One of the steps that the BCDC took to prepare the shovel-ready site was to help fill a financing gap by successfully applying for an $800,000 grant through the U.S. Department of Health and Human Service's Community Economic Development (CED) program that can assist in completing the development.
It is easy to see why shovel-ready sites are attractive to companies, because having those preliminary steps completed can shave months - even years - off a development schedule. An environmental remediation alone can take two to three years to complete. Particularly in urban areas, it is difficult to find sites that don't have entanglements such as an existing building that needs to be razed or a brownfield site that needs cleanup work.
Economic development agencies are making a strategic effort to remove hurdles so that an available site becomes closer to development-ready, and ultimately is more attractive to firms looking at relocation or expansion options. "In our city, we have six to eight industrial sites available at any given time that we market as development-ready or shovel-ready," says Brick City's Richardson. "That means a company that is ready to move quickly on a new build-to-suit can be up and running in its new facility in as little as 12 to 24 months."