Mega Industrial Users Don't Drive the Market

The get a lot of attention, but are major ecommerce users driving tenancy in the industrial market? Jeff Rinkov, the CEO of Lee & Associates, says no, adding that the industrial tenant mix is much more diverse and therefore better protected against a potential downturn. According to the 2Q17 report from the firm, rental rates are continuing to increase to all-time highs. As a result, tenants are starting to pushback and move to other markets, but others are finding ways to adapt. To find out more about the market, the extreme increase in rents and how tenants are adapting, we sat down with Rinkov for an exclusive interview.

GlobeSt.com Rents are continuing to rise for industrial product. Are these record rents sustainable?

Jeff Rinkov: When a market goes up this dramatically, at this pace and these percentage gain levels, it levels off. In discussions that I have had with our brokers, we are starting to see some pushback. Maybe it is anecdotal right now, but it might create a pause in the incredible growth. We are starting to see rents go to levels where it is creating a level of unaffordability. We are seeing people migrate to smaller submarkets of larger markets looking for lower rents, and that will sustain for a while, but we went through a long period in this up-cycle where we saw tame, measured rent growth. In the last 24 to 36 months, we have seen really dramatic rent growth. I am not sure that is sustainable. Tenants may just need to find more efficiency or cheaper markets.

GlobeSt.com: Despite tenants looking in other markets, is there still tremendous competition for available spaces?

Rinkov: The market has clearly swung in the landlord's favor, and I think that tenants are finding that even though rents are tremendously high, relative to where they started leases seven to 10 years ago, they are going to find the same rent when they go into the market. For that reason, we are seeing a high renewal percentage. We have actually seen in certain markets where developers are developing waiting lists. We are seeing international tenants and regional tenants taking over spaces from local tenants who can no longer afford the space.

GlobeSt.com: Because of the high prices, are you seeing major industrial market shift to major users, like Amazon?

Rinkov: Based on the volume of news we hear, you would think that those are the only tenants in the market. My experience is that a growth cycle that is this robust is not supplied by only one industry. Ecommerce has been a good catalyst, and I think there is more news about it because it is more consumer driven. However, we are seeing more of a broad base level of growth on the consumer side that has created this demand.

What types of users make are most active in the market?

Rinkov: We have seen more traditional retailers grow their distribution. We have seen growth in manufacturing, whether is aerospace or home furnishings, and some of that is used for distribution as well. Some of that may go to channels that become ecommerce generated, but not all the products are being distributed through ecommerce channels.

The get a lot of attention, but are major ecommerce users driving tenancy in the industrial market? Jeff Rinkov, the CEO of Lee & Associates, says no, adding that the industrial tenant mix is much more diverse and therefore better protected against a potential downturn. According to the 2Q17 report from the firm, rental rates are continuing to increase to all-time highs. As a result, tenants are starting to pushback and move to other markets, but others are finding ways to adapt. To find out more about the market, the extreme increase in rents and how tenants are adapting, we sat down with Rinkov for an exclusive interview.

GlobeSt.com Rents are continuing to rise for industrial product. Are these record rents sustainable?

Jeff Rinkov: When a market goes up this dramatically, at this pace and these percentage gain levels, it levels off. In discussions that I have had with our brokers, we are starting to see some pushback. Maybe it is anecdotal right now, but it might create a pause in the incredible growth. We are starting to see rents go to levels where it is creating a level of unaffordability. We are seeing people migrate to smaller submarkets of larger markets looking for lower rents, and that will sustain for a while, but we went through a long period in this up-cycle where we saw tame, measured rent growth. In the last 24 to 36 months, we have seen really dramatic rent growth. I am not sure that is sustainable. Tenants may just need to find more efficiency or cheaper markets.

GlobeSt.com: Despite tenants looking in other markets, is there still tremendous competition for available spaces?

Rinkov: The market has clearly swung in the landlord's favor, and I think that tenants are finding that even though rents are tremendously high, relative to where they started leases seven to 10 years ago, they are going to find the same rent when they go into the market. For that reason, we are seeing a high renewal percentage. We have actually seen in certain markets where developers are developing waiting lists. We are seeing international tenants and regional tenants taking over spaces from local tenants who can no longer afford the space.

GlobeSt.com: Because of the high prices, are you seeing major industrial market shift to major users, like Amazon?

Rinkov: Based on the volume of news we hear, you would think that those are the only tenants in the market. My experience is that a growth cycle that is this robust is not supplied by only one industry. Ecommerce has been a good catalyst, and I think there is more news about it because it is more consumer driven. However, we are seeing more of a broad base level of growth on the consumer side that has created this demand.

What types of users make are most active in the market?

Rinkov: We have seen more traditional retailers grow their distribution. We have seen growth in manufacturing, whether is aerospace or home furnishings, and some of that is used for distribution as well. Some of that may go to channels that become ecommerce generated, but not all the products are being distributed through ecommerce channels.