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Area Development

Critical Site Selection Factor #6: Available Buildings - Can’t Get Much Tighter

Companies are now facing the bottom of the barrel in existing spaces.

Q4 2014
This series examines the top-10 site selection factors as decided by the respondents to AD's Q1 Corporate Executive Survey. Labor costs, skills, and highway access are top of mind; construction and occupancy costs are key; and availability of ICT infrastructure is getting closer scrutiny. Find out what else your company should consider when making its next location/expansion decision…

The squeeze on vacant, existing facilities keeps growing as the U.S. economic recovery takes hold, which is why the available buildings factor climbed to #6 in the 2013 Area Development Corporate Survey from #8 in the 2012 survey - and from #15 in the 2011 survey! This criterion was rated 83.3 percent in importance.

The reason is clear: Now that we are in a clear growth mode, companies seeking industrial, distribution, R&D facilities, and office space increasingly are pressed to find existing buildings that will accommodate their needs. And companies are well aware of the vast cost savings they can realize if they somehow can locate and rehab an existing building rather than putting up a new one. “Most projects still prefer an existing building instead of taking the time and expense to build from the ground up,” says Kathy Mussio, managing partner at Atlas Insight.

The default position remains that if a company can find an existing building that will work for them, they can get into it faster and at a better price point, and that’s the preferred approach. Larry Gigerich, Managing Director, Ginovus Scott Kupperman, founder of Kupperman Location Solutions, notes that “there were a lot more options with existing buildings during the recession. But in the past two years, quality buildings have been snapped up by developers, investors, and users. Meanwhile, many national developers are being far more cautious about starting to build right now. That is an issue, mostly because companies tend to not allow enough time from the point where they determine they have a requirement to the time they actually need to be in a building. They think it should take six months and it actually takes 14.”

The Default Position
“The default position remains that if a company can find an existing building that will work for them, they can get into it faster and at a better price point, and that’s the preferred approach,” says Larry Gigerich, managing director of Ginovus. “The challenge we’re starting to see in some markets — and that will grow in particular in the next 24 months — is the quality of what’s left, particularly on the industrial side. We’re getting down to some buildings that aren’t in very good shape and won’t work for many businesses.”

Genova Products Inc. is one company that has managed to beat the increasing odds. It now is leasing a 100,000-square-foot factory in Paducah, Kentucky, that once housed Infiniti Plastic Technologies Inc. The maker of PVC pipe and fittings plans to grow from about 15 jobs currently to about 125 jobs there. “The building was constructed to create at least 100 jobs in the plastics industry and that’s exactly what Genova is proposing to do,” said an official of McCracken County.

In this environment, some of the most fortunate companies are those that can work with their own existing space to accommodate their needs for expansion. For instance, Smoker Craft Inc., a metal and fiberglass boat manufacturer, plans to invest $4 million to expand its operations center in New Paris, Indiana, in the next few years by renovating and equipping its own 500,000-square-foot production facility there.

And with the uptick in the economy, U.S. warehouse vacancy rates also continue to decline, says Colliers International, which conducts a quarterly review. Vacancies fell over a period of six quarters to a nationwide rate of just 7.7 percent during the second quarter of 2014, the firm reported. The lowest vacancy rate was in the West; in Los Angeles, the rate dipped below 2.5 percent. At the same time, that region also booked 40 percent of net leasing activity and 25 percent of all transaction activity during the period.

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