Industrial Space for Lease 2020 Review & Outlook 2021

Industrial Space for Lease Is in Hot Demand

Despite the extraordinary challenges of 2020 including the global pandemic, the election and the economic uncertainty that came from both, industrial property sector fundamentals are encouraging. Industrial space for lease is in extremely high demand. According to Statistca Research Department the national vacancy is at near historic lows and the lowest of the commercial asset classes with a 10% vacancy rate. E-commerce is the most significant driver of demand. This demand has surged since the beginning of the pandemic. CoeoSpace predicts that this demand will only increase in 2021. Therefore, this is amazing news for industrial owners and investors!

Why is Industrial so solid now?

Even on smaller industrial assets tracked by the National Association of Realtors (NAR/REALTORS®), as reported in their Commercial Real Estate Trends & Outlook, July 2020 Report, the industrial market is the strongest of the commercial real estate sectors given the expected continued and constant growth in e-commerce. The trend toward online shopping and delivery is not likely to end anytime soon or ever.

The “Amazon effect” is often credited for the strength of industrial real estate and has become well known terminology. What is the Amazon Effect you ask?Well, Investopedia defines The “Amazon effect” as the impact created by the online, e-commerce or digital marketplace on the traditional brick and mortar business model due to the change in shopping patterns, customer expectations, and a new competitive landscape. So, Amazon delivery has become a new normal for a significant portion of American households. As a result, the Amazon effect has fundamentally and permanently changed how consumers buy product and their expectations for delivery which is “why wait?”. I love to buy product immediately when I need it. I’m sure you do too!

The pandemic has also led online grocery to explode as many households who had never before ordered online, now use it regularly. So, this trend is expected to continue post-pandemic.  CBRE estimates that cold storage facilities alone are likely to grow by as much as 100 million square feet by 2025 which is a 47% increase from the current 214 million square feet (NAIOP, The Cold Storage Market is Heating Up, Spring 2020 Issue).

What is BOPIS for industrial space for lease?

In addition to e-commerce, the pandemic has led to a burst of BOPIS (buy online, pick up in-store). BOPIS will become a well-known acronym. As consumers become more familiar with the ease and convenience of this delivery method, they will demand BOPIS.

Through our own CoeoSpace database, we have seen significant industrial product get leased in the past 6 months. This is amplified in strong industrial markets including Chicago, Houston & Dallas. The largest industrial markets including Inland Empire, California and Eastern Pennsylvania/Southern New Jersey continue to grow. These markets are completing record new constructions projects.

2020 Year End Projection

2020 year-end absorption is likely to be 200 million square feet. Because, new product delivery is at an anticipated all time high. This is likely to reach just over 100 million square feet based on most major industry players’ research. There is plenty of new construction underway. And the demand for well-located, well-built industrial space is currently almost keeping up with this supply. This balance will be important to watch.

2021 Outlook and Beyond

It seems clear that we will continue to see the growth of e-commerce and direct-to-consumer delivery channels for the foreseeable future. As depicted below, JLL projects growth of over 1 billion square feet of industrial space by 2025 as developers and investors are ready and eager to meet the continued demand.

These new construction projects will be state of the art, high tech industrial space. This will allow occupants to leverage artificial intelligence, machine learning, robotics, and drones which will allow them to maximize all links in the supply chain.

Industrial commercial real estate is clearly the asset class to watch…

Sources: JLL, CBRE Global, Cushman & Wakefield, NAIOP, Statistca, National Association of Realtors (NAR)

Written By: Sheila Samii Matuscak

Office Space in a Post-Pandemic World

When Rip Van Winkle falls asleep in the Catskill Mountains just before the Revolutionary War, he doesn’t wake until twenty years later—beard grown a foot and a rotting, rusty musket by his side—to a post-war world that’s very different from the one he remembers. How does this relate to commercial office space after Covid-19, you ask?  CoeoSpace is here to address what we anticipate will happen.
While it’s a bit much to suggest that we will emerge from our current isolation to find a world as altered as the one Washington Irving presents in “Rip Van Winkle”. Although self-isolation beards do seem to be a thing, there will certainly be changes. This will range from how we greet colleagues (no handshakes, please) to what we require from our office space.
So, Change, even positive change, like a promotion or a new office, can be hard. So, the reasons behind today’s workplace changes are anything but positive. After all the worry and loss, we look forward to the return of normalcy. Yet we may find that the workplace we’ve been so eager to return to differs considerably from the one we left behind. Office space will likely be hard to recognize from pre-pandemic times.

Personal safety, always a top priority for employers, has a new look—one that requires keeping people at a safe distance to help limit the spread of disease. So, the productivity benefits related to open floor plans and desk sharing are taking a necessary back seat to the need for individual workspaces and agile work-from-home options. To return workers to the office safely, companies are having to make significant adjustments.

Your company’s return-to-work plan may begin with your schedule—possibly alternating two weeks at home with two in the office, in an effort to decrease office population density. When it’s your day to return, give yourself a little extra time to actually make it to your desk—there may be a wait at your now voice-activated elevator, due to the limited number of people permitted inside. Arriving at your floor, you take a circuitous route down designated one-way hallways intended to limit your interaction with colleagues. You get to your usual desk in the open office plan only to discover that it has been moved six feet away from your coworkers’ desks, and “sneeze guard” partitions have been installed. The on-site gym has been shuttered, and in the office cafeteria, seating is limited to a single person per table.
While this degree of change may seem daunting, it’s likely coming. Cushman & Wakefield, a commercial real estate firm, has already created “the six foot office,” which uses design tools such as some of those described above to keep coworkers at least six feet apart, thus mitigating the risks inherent in returning to work.
Businesses in the U.S. are also taking cues from those with offices in parts of the world where employees have begun their return to work. As Jena McGregor of the Washington Post reports:
“IBM, which has begun adding back workers in several locations in China and South Korea, has developed global standards for returning to the office. They include bringing back those who need access to on-site equipment or labs first, staggering arrival times so elevators don’t become too crowded, eliminating buffets and shared serving tools in cafeterias, and taking out furniture in other spaces to ease social distancing concerns in conference rooms.”
Other companies, like Intel, have also implemented strategies to limit the spread of disease, such as requiring more frequent and visible office cleaning, distributing masks, providing disposable plastic covers for shared keyboards, and screening for symptoms.
As Uri Berliner of NPR points out, some protective measures require making judgment calls, such as deciding whether to mandate temperature checks and contact tracing. Along these same lines, sensors used to monitor desk usage, once touted as a way to maximize utilization, are now being investigated as a way to ensure that those same desks are not being used too much, and are being cleaned at appropriate times.
At this early juncture, much is still unknown, including whether companies will, as some people posit, ultimately require less office space. As Rani Molla reported for Recode:
“In short, it is too early to tell if companies will lease less space,” Julie Whelan, Americas head of occupier research at commercial real estate services company CBRE, told Recode. “While they may need less space because some people may conduct some of their work remotely, they may also need more space to provide the social distancing that employees may feel they need to be comfortable.”
It’s also too soon to tell how many of the changes now being implemented will remain in place even after we have a COVID-19 vaccine or effective treatment. It seems likely, however, that the ones most apt to stick around will be those that provide benefits beyond mere social distancing. When CoeoSpace made the decision to offer live remote tours of commercial real estate properties, for example, its short term goal was to allow landlords and tenants to continue to safely find and visit commercial real estate spaces while social distancing, but long term, these remote tours will offer the continued benefit of cost and time savings to those attempting to locate and secure property from distant locations.

Returning to old Rip Van Winkle and the new world he found himself in, let me assure you that everything worked out just fine. His grown daughter took him in, and although it was some time before he could fully comprehend all that had changed while he slept, he eventually resumed his old habits and did very well for himself indeed.

We hope it will be the same for all of us, in time as we look to return to the office space we so miss.

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by: Kim Pierson
for CoeoSpace

Pittsburgh’s Oakland Neighborhood: Education and Innovation

Mention “Oakland” in most parts of the U.S. and people will think of the large California port city. Not so in Western Pennsylvania. Here, people identify “Oakland” primarily as the neighborhood at the forefront of Pittsburgh’s academic and healthcare renaissance.
Home to three nationally-ranked universities, the University of Pittsburgh, Carlow University, and Carnegie Mellon University (technically part of neighboring Squirrel Hill, but just over the border), Oakland’s predominant landmark is the University of Pittsburgh’s 42-story Cathedral of Learning—the tallest educational building in the Western Hemisphere. Be sure to venture inside the Cathedral to view its enormous Commons Room (the four-story, nearly .5 acre room looks like something out of Harry Potter) and tour its 31 Nationality Rooms, all of which were “designed to represent the culture of various ethnic groups that settled in Allegheny County.” The rooms are particularly festive when decorated for the winter holidays, so stop in then if you can. Keep in mind, however, that the vast majority of the Nationality Rooms serve as functional classrooms, so touring is limited to weekends and other times when school is not in session.
While the Cathedral of Learning might be the easiest landmark to spot, it is only one of many architectural wonders in Oakland. Both the neo-Gothic Heinz Memorial Chapel (one of the most in-demand wedding venues in Pittsburgh) and Soldiers & Sailors Museum and Memorial Hall (paying tribute to American veterans from all branches of service) are also on the University of Pittsburgh’s campus, each less than a block away from the Cathedral.
Also nearby are the stunning Carnegie Museum Buildings, including the renowned Museum of Art (don’t miss the tremendous archive of Teenie Harris photographs) and the Museum of Natural History (the original skeleton of Dippy, one of the world’s most famous dinosaurs, has been on display there since the completion of the 1907 expansion required to house it!). A statue of Dippy stands outside the complex—sometimes sporting a scarf for winter, or dressed to support Pittsburgh sports teams—a sure sign that you’re in the right place. The historic 1,900 seat Carnegie Music Hall and the main branch of the Carnegie Library complete the Carnegie Museum complex, portions of which date back to 1895.
Across the street from both the Carnegie Library and the Cathedral of Learning is Schenley Plaza, which features gardens, the Victorian-style PNC Carousel (open mid-April through mid-October), and The Porch, a popular restaurant featuring seasonal, local food with a rooftop garden and beehives (be sure to try the wood-fired pizzas).
Continue along Schenley Drive into the 456-acre Schenley Park to Flagstaff Hill, known for its movies in the park (shown at dusk throughout the summer) as well as the Carnegie Mellon Buggy race (held each April—this year celebrates the race’s 100th anniversary). The park is also home to the Phipps Conservatory, one of the greenest buildings in the world, as well as one of the most lovely, with exhibits that change frequently (the winter flower show and light garden is a must-see). The adjoining Café Phipps is a good spot for a reasonably-priced light lunch, with numerous vegetarian options.
Other top restaurants in the area include Spice Island Tea House, a longtime favorite for Southeast Asian food, Mount Everest Sushi for fresh sushi and poke bowls, and Butterjoint for burgers and cocktails. For dessert, follow the scent of homemade waffle cones to Dave & Andy’s for unique and absolutely delicious ice cream. Check for festivals, too, such as St. Nicholas Greek Orthodox Cathedral’s Greek Food Fest (the 2020 event will be held May 3-9), for excellent food and entertainment.
The University of Pittsburgh Medical Center has numerous offices and hospitals in Oakland, including UPMC Presbyterian and UPMC Montefiore, both closely affiliated with the University of Pittsburgh School of Medicine. In addition, UPMC has announced plans to build a new heart and transplant hospital on the UPMC Presbyterian campus. Magee-Womens Hospital (where approximately 45% of all births in Allegheny County take place) and Western Psychiatric Hospital are also in the neighborhood.
In an area known for education and innovation, it’s no surprise to find high-quality coworking spaces such as Avenu, “just a moment’s walk from the invaluable resources at Pitt, CMU and UPMC and geared toward university-affiliated innovators and entrepreneurs.” With flexible leasing options, and an outstanding reputation for hosting start-ups, Avenu provides a suitable work environment for everyone from students to established business owners.
With all that Pittsburgh’s Oakland has to offer, it’s only a matter of time before even those living outside of Western Pennsylvania recognize the name.
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Written by: Kim Pierson
for CoeoSpace