Industrial Real Estate: Where Did All The Inventory Go?!

Multiple counter offers, above asking price offers, sight unseen offers....this sounds like the beginning of an article describing the residential real estate market.  Not today! These terms are now being used in the industrial real estate market. The sustained low vacancy rates combined with continued economic growth is causing the industrial real estate market to become increasingly competitive.

The fresh Q1 numbers are in. Surprisingly, the vacancy rate for SE WI slightly increased from 4% to 4.3% with our primary market of Waukesha County increasing 2.4% to 2.8%.  However, a deeper look at the statistics show that the vacancy rate is so low that if 1 or 2 large companies move, that can move the needle by 15%!  For example in Q1, Quad Graphics vacated a large warehouse in Menomonee falls.  This single move of almost 400,000 SF accounted for most of the increased vacancy SF.  The point of this explanation is to highlight the fact that the vacancy level is so low that small and medium sized spaces are at near zero vacancy.  In addition, there is a supply shortage for building so material costs has pushed construction costs up.  The combination of low supply and the increasing cost of new construction are pushing up the values of existing real estate.

What does this mean for Buyers (or Tenants)?  Start looking early and be prepared to look in a wider geographic area as supply is constrained.  Be ready to act if you find a suitable property.  Now it is more important than every to have a good team helping you.  This includes all persons that may be involved in the process: your banker, attorney and of course your Real Estate Agent!  We are seeing more deals with competing offers so the Buyer that is most prepared will have the best chance to secure the property while not making potentially costly mistakes. Also, the right agent should be able to bring you more options which includes ensuring you are one of the first into a new listing, bringing opportunities to you that may not be on the market yet, or thinking outside the box to find an opportunity that may be a great fit that is slightly outside of your described parameters.

How about for Seller (Landlord)?  Congratulations!  You have decided to sell (or lease out space) in a strong market!  If your sale or industrial lease is handled correctly you should enjoy the benefits of finding a buyer or tenant in an up market.  This should include less time on the market, a quicker closing, higher price and less discounts. However, there are a lot of Buyers that will try to take advantage of Sellers that do not know the market.  A good agent will weed

out those Buyers and make sure you sell for the best possible terms.  Landlords are also benefiting from longer lease terms, less rental concessions and higher rents. Again, Landlords should discuss their needs with a good agent.  Entering into a poor lease can actually reduce the value of a property and could be very costly for the Landlord in the end.

-Mark Gorski, Principal Sales Agent