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Robots, High Ceilings and Flexibility Are What Tenants Want in Warehouses of The Future

October 8, 2018



Robots, High Ceilings and Flexibility Are What Tenants Want in Warehouses of The Future

Industrial vacancies in the U.S. are down and demand is up, causing developers in this formerly sleepy asset class to make technology improvements and literally raise the roof in some U.S. markets to accommodate a growing roster of potential tenants. “It used to be if you thought of industrial, you’d think of that industrial property in need of repairs that people were charging $2 to $3/SF,” Boston-based Calare Properties Managing Director Charles Nolfi said. “We like the current action, where flex space on the industrial front has become extremely valuable.” Calare Properties acquired in September a 32K SF warehouse in Revere, Massachusetts, 8 miles north of downtown Boston. The warehouse is 75% open industrial space and 25% flexible office for AmQuip, a crane rental agency that leases the entire facility. Flex space like what is offered at Calare’s latest warehouse acquisition is one of several growing U.S. warehouse trends, according to a recent JLL “Warehouse of the Future” report. Trends such as the use of automated robots are increasingly being seen in modern warehouses to cut down on time spent moving bulky goods in a warehouse. Higher building clear heights enable more capacity. Solar panels and cool roof systems can cut down on energy costs for sustainable-minded tenants and electric charging stations can be used to power a fleet of electric cars utilized for last-mile delivery in dense urban settings. With so much industrial demand coming from e-commerce companies looking for ways to improve last-mile delivery, technological features that improve productivity and means to scale are common requirements from warehouse tenants. “As you look from a national perspective, e-commerce is here to stay,” JLL Vice President Michael Ciummei said. “The market will continue to stay strong.” Larger tenants like Amazon are also looking for properties with surrounding land to enable more parking or provide the opportunity to expand the warehouse when needs arise. Other operators are relying on wireless technology to provide real-time inventory information. The same data combined with improvements to forklifts are also allowing for a speedier supply chain operation. “Increasing urbanization, essentially a higher density of human activity, is creating a need for higher product throughput at existing storage assets,” The Seyon Group Managing Partner Andrew Iglowski said. "Automation is a tool that will enable use to meet that need." Industrial rents in Greater Boston have increased from the $4/SF range 30 years ago to currently approaching $30/SF in some submarkets close to downtown Boston. Iglowski’s firm focuses on acquiring industrial assets close to the urban core in primary markets in the Northeast. While he sees merit in warehouse trends like higher clear heights, Iglowski is focused on how the industrial sector responds to calls for greater density in urban areas, evolving efficiencies in supply chains and e-commerce’s continued demand for space. “The supply of available and affordable land continues to decrease in certain markets,” he said. “We have to find ways in existing buildings to retrofit them to make them appeal to users today.” The Seyon Group has done that at its own properties by raising the roof to increase clear heights. Technology as well as advancements in lighting have boosted standard clear heights nationally from a 24- to 26-foot range seen in the 1990s to the current standard of 36- to 40-foot clear heights, according to the JLL report. The trend has even led Prologis to pursue the first multistory warehouses in the U.S. at properties it owns in Seattle, New York City and San Francisco. Amazon is also reportedly building several multistory distribution facilities across the U.S. totaling about 2.5M SF each. Smart warehouses are also a growing trend in the industrial sector, both in China and the U.S. These warehouses rely heavily on automation and interconnected technology systems to boost productivity and cut down on labor costs. But they don’t come cheap. Interior build-outs on a traditional warehouse typically costs about $10/SF while smart warehouse interior work can cost as much as $200/SF. The price disparity is a big consideration for landlords who wonder if the investment is worth it for a single tenant, Iglowski said. While the JLL report indicates the tech upgrades are what warehouses will feature in the future, one broker says the features are mainly limited today to large-scale tenants. “When you see big, large national distribution companies looking for 500K SF to 1M SF, that’s when you see technology starting to take over,” JLL Senior Vice President Joe Fabiano said. (Bisnow)



The Evolution of Platte Street: from 150K SF to 1M SF in a Few Short Years

Over the last few years, Platte Street has evolved from a few blocks with no real identity to one of the most desirable places to open an office. Sandwiched between Denver’s trendy LoHi neighborhood and the Central Platte Valley, Platte Street doesn’t belong to any neighborhood, an attribute developers have found attractive. “That’s a real benefit because we don’t have a BID, so there’s no tax overlay,” said Unico Properties Vice President and Regional Director Austin Kane, who is a panelist for Bisnow’s Denver New Construction & Development event Oct. 30. Kane estimates that taxes on buildings in a business improvement district are about $14/SF, compared with about $10 for those on Platte Street that are not. “That’s a difference-maker,” Kane said, noting that the owners on Platte Street are responsible companies whose best interest is in making sure not only their buildings but the street itself is maintained. For example, Grand American Inc. and The Nichols Partnership have formed public-private partnerships with the city of Denver to redevelop the West Side Line, an old railroad spur on the western bank of the Platte River that was vacated. The plan is to create a landscaped pedestrian-only walkway from the 16th Street bridge over the river to the 19th Street bridge. Grand American and Nichols both have recently developed office buildings on the riverfront side of Platte Street. Grand American owns the Boathouse and the historic Platte River Rowing Club building, and Nichols completed The Nichols building a few years ago. Earlier this year, Nichols agreed to pay $13.5M for a city-owned parking lot. The company’s $20M plan for the site, a project called One Platte, calls for retail and restaurant space on the ground floor of a 246K SF building, with the upper floors devoted to offices. Nichols also agreed to provide 90 public parking spaces. (There are 124 there now.) Half of the proceeds from the sale of the land will go to the city’s Affordable Housing Fund. “We think [One Platte] will be the last great project of any scale to get built here,” Newmark Knight Frank Executive Managing Director Jamie Gard said during a recent NAIOP downtown walking tour, which showcased the yet-to-be built property on one of the tour stops. “It’s an active street that’s not as corporate-feeling as downtown. We’re really wanting to attract the next generation of big users we’re seeing come in from San Francisco.” Unico Properties was one of the early investors in Platte Street, acquiring three historic buildings and a developable parcel in 2013. In addition to the historic Root, Zang and Big Chief Bottling Co. buildings, Unico purchased a parcel of land where it developed the recently opened Circa Building, a 96K SF LEED Platinum-certified structure that is the new Denver headquarters office of technology company Xero. “Platte Street is going from what was 150K SF of office space for the past 50 years to what will be nearly 1M SF of office,” Kane said. Just north of Circa is The Lab, a 78,576 SF office building, two floors of which are occupied by WeWork, the second location the global coworking network opened in Denver. Developed by Confluent Development, The Lab was sold immediately after completion. "The street's location as a landing point between the rapidly redeveloping Union Station neighborhood and the magnet of residential and restaurants in the Lower Highlands made it a natural location for new Class-A creative office space," said Confluent Development President and CEO Marshall Burton, whose company will be represented by Executive Vice President of Development Management Dean Barber at the Bisnow event. Trammell Crow recently completed Riverview at 1700 Platte, a 195K SF building that is 100% leased to the BP Lower 48 headquarters. There also are three retail spaces, one of which has been leased to Maria Empañada restaurant. The building features a 420 SF living green wall — the largest in Colorado — and filters and treats rainwater in its courtyard gardens before it flows back into the river. At the northeast corner of 15th and Platte, Crescent Real Estate LLC is developing Platte Fifteen, a five-story, 156,915 SF building that will include street-level retail with four stories of office space above. Part of what defined the neighborhood in the early years was the construction of the Denver Tramway Powerhouse in 1901. The Denver Tramway Co. had an exclusive city franchise to build electric streetcar lines in Denver, and the building housed the boilers and engines used to generate electricity for the rail system. As the automobile gained popularity, the rail lines were removed from Denver’s streets, and the Powerhouse closed in 1950. It was used as a warehouse until the Forney Museum of Transportation bought it in 1969. REI took over the building in 1998 for redevelopment into its flagship Denver store. The $32M project was considered a catalyst for development in the Central Platte Valley, so the Denver Urban Renewal Authority provided $63.M in tax-increment financing to the developer. But it was the series of bridges on 16th Street that changed everything. The Millennium Bridge connected the Central Platte Valley to Denver Union Station and the rest of downtown, and the bridge over the Platte River linked Platte Street to the Central Platte Valley. Then, in 2006, the Highland Bridge completed the chain from the emerging LoHi neighborhood to the rest of the city, a transformative project that leveraged a relatively modest public investment compared to the benefits it has brought to the city. Kane, who was a history major, said the location appeals to him for several reasons. First, there is the history. Then there is the “funkiness” that has been created over the last several decades with businesses like the old Paris on the Platte coffee shop and My Brother’s Bar, the oldest continuously operating bar in Denver. “This is essentially where Native Americans and the first settlers from the east started trading 150 years ago,” Kane said. “Platte Street became a place of business in Denver before there really was a Denver. Then Platte Street, while it was one of the first streets, languished and was left to fall by the wayside for decades. It was kind of a dicey part of town. We saw the potential, and we thought there was a real opportunity to make something.” (Bisnow)



DTC Office Building Sells for $85M

An office building in the Denver Tech Center has sold for $85.2 million. 6200 S Quebec LLC on Tuesday purchased the Millennium Plaza, at 6200 S. Quebec St. in Greenwood Village, according to county records. The LLC lists an address that matches the Beverly Hills, California, headquarters of real estate investment firm Kennedy Wilson. A company spokeswoman confirmed the purchase. According to the property’s website, the four-story building dates to 1982 and is 335,855 square feet, which makes the deal worth $254 a square foot. The structure sits on a 26-acre lot and includes an expansive parking lot. The property was sold by CBRE Global Investors, advisor to the California State Teachers’ Retirement System, which purchased it in December 2006 for $44.6 million, according to records. The building was renovated in 2015, according to its website. Engineering firm Aecom is the only tenant in the property, leasing approximately 80 percent of the site. The Kennedy Wilson spokeswoman said the company does not have plans to significantly renovate or alter Millennium Plaza. (BusinessDen)


U.S. Unemployment Rate Falls to 49-Year Low of 3.7 Percent

The U.S. unemployment rate fell to 3.7 percent in September — the lowest level since December 1969 — while hiring slowed. Employers added just 134,000 jobs, the fewest in a year, the Labor Department said Friday. But that figure was likely lowered by Hurricane Florence. Florence struck North and South Carolina in the middle of September and closed thousands of businesses. A category that includes restaurants, hotels and casinos lost jobs for the first time since last September, when Hurricane Harvey exerted a similar effect. Still, September extended the longest streak of hiring on record, with millions of Americans having gone back to work since the Great Recession. Healthy consumer and business spending has been fueling brisk economic growth and emboldening employers to continue hiring. The September gain extended an 8½-year streak of monthly job growth. Aside from the impact of the storm, the underlying trend in hiring remains strong. Job gains in August and July were revised sharply higher, to show 87,000 more jobs were added. Employers have added a robust 190,000 jobs over the past three months. Last month, average hourly pay increased 2.8 percent from a year earlier, one tick below the year-over-year gain in August. That figure could rise in the coming months. With the unemployment rate so low, companies are facing intense pressure to boost pay to find the workers they need. Amazon responded on Tuesday by raising its minimum wage to $15 an hour. Consumers, business executives and most economists remain optimistic. Measures of consumer confidence are at or near their highest levels in 18 years. Retailers have begun scrambling to hire enough workers for what’s expected to be a robust holiday shopping season. A survey of service-sector firms, including banks, hotels and health care providers, found that they are expanding at their fastest pace in a decade. Americans have continued spending steadily and appear to be in generally stable financial shape. Households are saving nearly 7 percent of their incomes — more than twice the savings rate before the recession. That trend suggests that a brighter economic outlook hasn’t caused consumers to recklessly build up unsustainable debt. During the April-June quarter, the U.S. economy expanded at a 4.2 percent annual rate, the best in four years. Economists have forecast that growth reached a 3 percent to 3.5 percent annual rate in the July-September quarter. The economy does show some weak spots. Sales of existing homes have fallen over the past year. Increasingly expensive houses, higher mortgage rates and a shortage of properties for sale are slowing purchases. Auto sales have also slumped. Other threats loom, too. Borrowing costs for businesses and consumers are rising. Pointing to the economy’s health, the Federal Reserve last week raised the short-term interest rate it controls and predicted that it would continue to tighten credit into 2020 to manage growth and inflation. Over time, higher borrowing costs make auto loans, mortgages and corporate debt more expensive and can eventually slow the economy. But for now, anticipating stronger growth — and perhaps higher inflation — investors have dumped bonds and forced up their yields. The yield on the government’s 10-year Treasury note, a benchmark for mortgages and other loans, has touched its highest level in seven years. President Donald Trump’s trade fights could also weigh on the economy, though the effect on hiring won’t likely be felt until next year, economists say. The Trump administration has imposed tariffs on imported steel and aluminum as well as on roughly half of China’s imports to the United Sates. Most U.S. businesses will try to absorb the higher costs themselves, at least for now, economists say, and avoid layoffs. Still, should the tariffs remain fully in effect a year from now, roughly 300,000 jobs could be lost by then, according to estimates by Mark Zandi, chief economist at Moody’s Analytics. (Denver Post)