Fast becoming the hottest product type, class A flex, or high-tech space, gave the office market "a run for it's money last year," says report author Patricia Raicht, client services manager for Grubb & Ellis, attracting both high-end industrial users, who desire "glass and grass," and office tenants seeking relief from high rents. With nowhere to build, infill gained popularity among developers, who increasingly are looking to the city's core for underutilized buildings and warehouses to convert to new uses. Rising land prices and the location of obsolete buildings near or on fiber-optics lines are fueling this transformation of the city's industrial ugly ducklings.

New construction starts also rose, the majority of it in owner-occupied and pre-committed build-to-suits. Meanwhile, spec building screeched to a halt, as land became scarce and prices soared as high as $7 per sf. Raicht says this shouldn't change unless rental rates for shell spaces rise to 37 to 40 cents per sf.

With so much pressure in the industrial market, "these are lean investment times," she continues, noting investors have plenty of capital, but exchange opportunities and quality product for sale are scarce.

Raicht remains optimistic about the region's economy, but cautions that economic indicators confirm what the experts have been saying for several months, that the economy is slowing down. She says the issues most likely to impact industrial development, as well as commercial real estate overall, are growth-limiting and environmental-protection laws.

"These issues continue to be major topics of conversation because they impact the supply of land and force prices higher," says Raicht, as "both developers and users are struggling with finding land to accommodate expansion projects."

Instant Insights /

Industrial Market Enjoys Exceptional Year, With High-Tech in the Driver's Seat

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