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The Changing Face of Industrial Properties

Two real estate experts share insights on trends and opportunities for industrial property investors.

Part 1

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Part 2

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Part 3

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Industrial real estate looks far different than it did just two years ago. Dave Harrison, President, VanTrust Real Estate, and Jim Galovan, Partner, Pacific Coast Capital Partners, met with Matt Felsot and Alex Mast, West Regional Market Managers, Real Estate Banking at J.P. Morgan, to share insights on the rapidly changing industry. Among the topics:

  • The rise of e-commerce: In the past, demand for industrial property generally reflected GDP: When GDP went up or down, so did demand. Now, e-commerce and supply chain reconfigurations have emerged as demand drivers. Galovan thinks this may be a long-term trend. “Even in a slow economic time, you’re still going to see companies need to adjust to the changing face of how goods get delivered and processed,” he said. Harrison agreed about the effects of e-commerce. “It still has an inordinate amount of market share yet to be realized.”
  • The blurred line between spec and build to suit: Many of Harrison’s projects start as speculative and quickly become build to suit (BTS) because of delivery schedules and material procurement. His team uses lessons from these BTS properties to inform future spec site plans, adding major expansion capabilities and more trailer storage, circulation and employee parking than it would have five years ago.
  • New hotspots for industrial properties: Industrial properties are no longer only in Chicago, Los Angeles County and Northern New Jersey. “Next-day delivery simply doesn’t allow for that to work anymore,” Galovan said. To accommodate faster delivery, an increasing number of warehouses are located in smaller areas, such as Austin, Texas, and Washington’s Puget Sound.
  • Industrial projects and ESG: In the past three years alone, environmental, social and governance (ESG) factors have become increasingly important. Pacific Coast Capital Partners focuses on measuring its ESG efforts, benchmarking them and then improving upon those efforts in its new buildings. For every transaction, the developer uses an investment committee-approved ESG checklist and a risk dashboard to evaluate the location’s environmental risk—including fire risk and frequency of hurricanes and tornadoes.
  • Responding to the changing industrial landscape: Industrial properties are rapidly changing based on innovation in product movement and logistics. Innovation is happening so fast that neither developer can predict what the future holds, other than change. “Ten years from now, we’re not going to be building the same buildings we are now. I just don’t know what they’re going to look like,” Harrison said.
Real Estate Banking Commercial Real Estate Trends Markets and Economy Industrial

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