Is your community losing business attraction opportunities due to the lack of commercial real estate inventory? Perhaps it’s not the lack of inventory, rather it’s the lackluster product? Perhaps both. Whichever the case may be, many communities are finding themselves constrained by these supply issues, which is ultimately impacting their economic development abilities. These supply-side issues are sending communities scrambling to add real estate inventory to meet the immediate growth demands that companies have. These immediate growth needs tend to result from a company landing a new account or a new customer, straining them to deliver products or services without the ability to wait for developers to build them new facilities in a short period of time. If your community has available product today, be proactive by conducting a market evaluation. Determine how long that supply may last based on current trends, new tenant arrivals or departures, new construction starts, and what may be functionally obsolete in the coming years. In essence, avoid the “shortage scramble” by assessing how existing and new inventory will allow for sustained economic growth.
In order for communities to analyze the depth of their real estate marketplace, it’s important to consider a few of the following critical factors:
- Historical Absorption Rates
- Vacancy Rate & Existing Supply
- Real Estate Development Pipeline
- Large Blocks of Contiguous Space
- Physical Land and Building Attributes of Available Real Estate Product
By conducting a thorough investigation of historical absorption rates (leased and sold properties), existing supply, and the aforementioned factors, communities can generally get a good sense of how much “bandwidth” is left in their real estate market. This planning assessment is essential to meet the facility needs for business attraction and retention prospects over the long term. The physical attributes and quality of inventory is important too, not just the quantity of square footage. If certain industry segments are part of the economic development and attraction strategy, it’s imperative to know how that industry uses real estate, ranging from outside storage space to overhead crane capacity. Additionally, it’s important to consider other real estate externalities like power and telecommunications requirements. In short, successful communities go beyond marketing their square footage and focus on the functionality of their real estate.
Upon completion of a market and inventory evaluation, assess the results. Test the assumptions and data, by engaging with local and regional development community including brokers, site selectors, and builders. When clients experience a supply shortage in the 25,000 to 50,000 square-foot range (which happens frequently to Juniper’s clients, due to larger user pool in this size range) in a given market, the clients may be forced to look elsewhere to deliver its business model. This is obviously not an ideal business retention and attraction strategy for communities. At any rate, this market and inventory evaluation activity by a communities’ development departments is viewed favorably by developers and serves as a mutual opportunity to exchange perspectives. The effort in and of itself will provide an indication that your community is a pro-active, business-friendly, and committed to long-term growth. As mentioned before, responding to real estate inventory corrections should be a proactive, not reactive, exercise, as the development cycle from financing to permitting can take upwards of two years, once a need or deficiency has been identified.
If your community or economic development organization is seeking to understand the real estate opportunities and risks within your community, Juniper would welcome the opportunity to help you not only analyze and assess your portfolio, but also develop an engagement strategy with the development community that addresses your long-term objectives.