JACKSONVILLE, FL—With more than 20 years of experience in commercial real estate, Monte Merritt has seen plenty of ups and downs in the industrial market. With all signs pointing to growth, we caught up with the senior director of the firm’s Jacksonville office to get his take on industrial leasing strategies in part one of this two-part exclusive interview.
GlobeSt.com: What is the state of industrial leasing and how has it changed over the past 12 months?
Merritt: During the past 12 months, both leasing and sales activity has increased within the industrial market with vacancy rates on a steady decline. According to CoStar, the rate decreased from 10.8% at the end of 2012 to 10.4% in the first quarter of 2013, and currently stands at 9.2%.
GlobeSt.com: Is it easier or more difficult to get industrial leases done? How creative do you have to get these days?
Merritt: The struggling economy and lack of job creation continues to make industrial deals more difficult to complete. While seen as improving, unemployment in Jacksonville is high, currently at 7%. Landlords have become more selective and want more detailed financial information than in the past.
In response to this selectivity, we have become increasingly creative in our approach to negotiating deals. One recent example of this involves a smaller tenant who was having financial struggles. We arranged for the tenant to sign a personal guarantee in order to complete the transaction.
GlobeSt.com: What trends are you seeing in industrial leasing?
Merritt: Distribution warehousing is still a top sector within the industrial market but manufacturing continues to improve as well. Industrial market users continue to be driven by efficiencies, depending on their sectors. For example, ceiling height is key for distribution users who value additional space.
The more cubic feet they can utilize, the better. These users also look for newer high-bay efficient warehouse lighting. The size requirement is keenly driven by the economy.
The industrial market in Jacksonville remains mainly a tenant’s market although as the market and economy improve, we will see a shift toward the landlord side. With vacancy rates still hovering around nine percent, many developers are hesitant to begin new projects.
This lack of new construction will aid landlords as absorption continues to improve. I have heard of some landlords/developers considering breaking ground on new construction. Time will tell if developers do decide to jump back in but until they do, absorption should continue to steadily improve.
GlobeSt.com: Is there a one-size fits all strategy for handling industrial real estate leasing transactions or does the strategy vary widely based on the market and the landlord and the tenant? What factors influence your strategy?
Merritt: When handling industrial lease transactions, it is not a one-size-fits-all business. Users have many different needs and developers must keep the big picture in mind. Some users need heavy electrical needs, while others need larger, longer truck courts.
For instance, in the trucking industry, maneuverability is a significant consideration. The trucks must be able to pull in and back up a certain type of equipment ranging from a 40- to a 53 –foot trailer. All of these factors influence pricing which in turn, influences leasing rates. This also puts pressure on the both the developer and the tenant relative to the term of lease that both sides may need to conclude a transaction.
GlobeSt.com: How do you approach industrial real estate leasing transactions? And is it any different than how other firms approach it?
Merritt: Knowledge is always crucial when it comes to handling any transaction in the commercial/corporate real estate market with all sectors of the real estate market being different. An industrial transaction is noticeably different from a retail transaction, so it important to have different teams that specialize in handling the unique issues associated with each sector.
Franklin Street has teams that specifically focus on the different areas of commercial real estate. Our firm utilizes a collaborative platform and a multi-faced approach, offering sales and leasing services in the industrial, office, retail, and multifamily sectors, as well as property management services and insurance specialists. Leveraging the skill sets of each department provides a complete customer service experience to our clients. Download PDF