Space Crunch

Manufacturers on the lookout for more room

Posted on Sep 29, 2020 :: InDevelopment
Posted by , Insight on Business Staff Writer

Commercial real estate plays a vital role in economic development, as it can serve as a barometer of how various industry segments are doing. Insight gathered three professionals, each with a different role in economic development to share their thoughts about what’s driving real estate decisions and what businesses are looking for.

This is an edited version of the discussion with Barb LaMue, president and CEO of New North, Inc., Manny Vasquez, vice president of business development for NAI Pfefferle, and Michael J.D. Brown, community and economic development director for the Town of Greenville.

Q: Manufacturing is a strong driver in the region, accounting for nearly one-fifth of economic output, and has remained largely vibrant amidst the pandemic and economic downturn. What are manufacturers looking for when it comes to space?

Vasquez: We are seeing demand for industrial space across the board, but the fastest-growing segment locally and nationally is probably warehouse and distribution. As manufacturing recovers from the downturn and online shopping becomes easier and faster, the need for storage space will continue to be a challenge, and an opportunity, in our market. It’s encouraging that several local and national development groups continue to explore opportunities in our communities. We offer the economic stability, access to labor (always a challenge) and a lower cost of doing business.

Brown: Flexibility is huge when it comes to looking for space. Businesses want to be able to easily change operations and logistics to meet the ever-changing demands both operationally and physically in a space. Especially during COVID, many companies have altered their operations and even the products they are making. Flexibility creates greater opportunities for resiliency.

LaMue: While not all manufacturing companies have maintained production levels, we are not seeing manufacturing companies shed real estate. Those companies whose production levels remain or are increasing are evaluating capital expansion plans, especially with the favorable interest rates and other market advantages.

Vasquez: We continue to see strong demand for warehouse and distribution, light and heavy manufacturing, and flex space. The challenge has been finding available space for lease or sale. NAI Pfefferle works with industrial tenants, as well as investors, who are looking for real estate to expand or invest in and there aren’t many options to choose from in Northeast Wisconsin. Industrial vacancy rates across the region have remained historically low. While that’s not necessarily a bad thing, it does limit companies’ ability to expand and grow locally. The good news, especially for tenants looking for storage and light industrial space, is that we’re seeing more interest from developers to build new inventory.

Q: When looking at fulfillment and warehouse space, you can’t help but mention the new 110,000-square-foot Amazon facility in Greenville.

Brown: Many might not realize how much work goes into making a deal like this come together; even the small projects take time. There are a lot of behind-the-scenes conversations and negotiations going on between the property owner and developer even before it gets to a municipality. Ryan Companies approached Greenville in August 2019. They had an approved site plan and financial incentive agreement in September 2019. They started construction in January 2020 and finally opened in July 2020. This was a complex project, which took a relatively short time from start to finish. I have to give a lot of credit to Ryan Companies, and specifically Ryan Marks, for making this project run smoothly. Ryan Companies was great to work with and I can’t wait to work with them on future projects.

Vasquez: At a high-level, the site selection process is more like a site elimination process. Communities, and eventually specific sites, that don’t have what companies are looking for aren’t considered in a data-driven process that looks to check a series of boxes and connect a series of dots.

From an economic development standpoint, this is why marketing available sites and opportunities to companies, site selectors and developers is a full-time job. It’s important to be proactive, especially as more companies look to invest in secondary and tertiary markets, which offer greater pricing and economic stability and a lower cost of doing business.

LaMue: NAI Pfefferle and the New North are working together to increase the number of shovel-ready sites in Northeast Wisconsin that communities can market to decision makers around the country. Both organizations will leverage their resources and networks, and work in collaboration with property owners and municipalities to add more eligible properties to the region’s inventory of development-ready sites.

Q: When the Safer at Home order was decreed in March, most businesses sent employees working in an office home. Once the order expired, some businesses brought their workers back to the office, but others still have their employees working from home. What effect, if any, do you see on the commercial office space market?

LaMue: Currently, the decision to maintain remote work is relatively easy, in that companies are first protecting the health and safety of their workforce. Companies are also working with their teams with challenges posed with school-age children and the need for continued learning from home and lack of child care. Longer term, it will be balancing the corporate culture, collaboration, and work-life balance against maintaining the work-from-home policies.

While the trend was for large, open-air office space, current return-to-office space configurations allow for physical barriers and more physical distancing while still allowing for strategically placed collaboration areas. While many companies will be bringing their employees back, their footprint will more than likely look different than what it was at the start of the year, keeping the “cool factor” and increasing technology to attract and retain talent. From a leasing perspective because of uncertain working conditions, flexible terms are important. Companies are not abandoning their offices in our region, but are just seeking ways to adapt their space needs now and after the pandemic.

Vasquez: We do not expect to see the majority of local companies give up their office space due to growing remote-work trends. That said, many of them are analyzing their space needs and reaching out with questions as they try to find a balance between employee safety, cost, as well as company culture, collaboration and productivity.

For the most part, I think employers want to see their teams back in the office. Companies are implementing social distancing guidelines, requiring masks, limiting capacity in board rooms, elevators, breakrooms and other common areas, restricting in-person meetings and visitors, increasing janitorial and sanitation services, etc. to avoid the spread of the virus and create a safe environment for employees who want to or have to return to the office. Because every company, home and family situation is different, I think the trend will be toward more flexibility from employers — providing the option to work from home or in the office.

Q:What are some other trends that you are seeing in commercial real estate?

LaMue: Retail is lagging. There was ample retail space available prior to the pandemic, and unfortunately this will take a long time to recover as people’s buying habits have changed. And while we have heard of business decisions about commercial office space for the short term, I think it is too early for companies to decide well beyond the pandemic on what their physical space will look like.

Vasquez: Multi-family is experiencing nice momentum. Mixed-use development, especially in our downtowns, is hitting the sweet spot for renters of various ages and stages who are looking for low-maintenance, walkable and centrally located options. The retail/commercial suites in these mixed-use buildings might take longer to lease post-COVID, but we expect multi-family demand to continue and rents to hold as long as the housing shortage remains.