Entrepreneurial Companies Spur Small-Box Industrial Growth
Demand has focused on large-box industrial product, but the stability of the economy is now fueling the expansion of smaller companies in need of smaller industrial spaces.
“The economic recovery started with larger corporations and trickled down to smaller corporations. In the last several recessions, it has been the opposite, where smaller companies emerged first and larger companies were slower to recover,” Jonathan Pharris, co-founder and president of industrial developer CapRock Partners, tells GlobeSt.com. “In this last recession, however, it was really top-down. That really drove big box development everywhere in the United States. Now, the entire market has recovered, and over the last 24 to 18 months, more entrepreneurial companies have felt comfortable enough in this economy that they are expanding. As a result, 50,000 to 200,000-square-foot spaces are in high demand.”
CapRock Partners has seen the pent-up demand for industrial product, and currently has 1 million square feet of new small-box industrial product under construction. Small box product takes on a different look than larger product. It generally averages 50,000 square feet, has four dock-high doors, is mostly used for distribution but could include manufacturing uses, and is single-tenant occupied. “We have seen this pent-up demand. Many developers, us included, have focused on big box industrial because that has been where the demand is,” says Pharris. “It is also more expensive to build a small-box building than it is to build a big-box building, and we are now at a point where we can build small box buildings. Today, the standing inventory of small-box buildings is at an all-time low.”
The firm’s new construction projects are as small as 30,000 square feet, while value-add industrial plays are usually 100,000 square feet to 150,000 square feet. In terms of location, smaller box buildings tend to be located closer to population centers. “You want to be as close to the coast as possible,” adds Pharris. “For us, that means the I-15 corridor in the Inland Empire, or Los Angeles, Orange and San Diego Counties.”
While smaller, entrepreneurial companies are fueling the majority of this demand, Pharris said that larger companies also have a needed for smaller spaces. “Small box buildings can also be occupied by significant companies,” he says. “We have multiple buildings under construction, and we have interest from Fortune 500 companies. While Fortune 500 companies are going to big box buildings, they also have needs for these smaller buildings, and we are providing solutions for them.”