Trends & Insights

Rob Gemerchak, investment sales broker in Northmarq’s Toledo, Ohio office, completed the sale of a single-tenant industrial building leased to Sturm, Ruger & Company, Inc., an American firearm manufacturing company based in Southport, Connecticut. The 224,888-square-foot distribution center is located at 700 South Ayersville Road in Mayodan, North Carolina. Gemerchak represented the seller, an investment partnership based in North Carolina. A Hiddendite, North Carolina-based investor acquired the asset for $8.3 million.  “The Mayodan asset received a great deal of national interest and multiple proposals from investors due to the financial strength of the tenant, the quality of the property and the continued growth of the Greensboro and Winston-Salem industrial markets,” said Gemerchak. “Despite the recent disruption in the debt markets, we continue to actively transact and successfully close sales, as the industrial net lease product remains in high demand as a favored asset class among investors.”  The recently upgraded distribution center sits on 16.09 acres and features ceiling heights up to 25 feet, eight dock doors, full fire suppression, heavy power capacity and a modern 8,200-square-foot front office. Located in a thriving industrial market, the property is less than two miles away from the company’s manufacturing plant. Sturm, Ruger & Company has operated this facility for nine years and plans to increase the factory capacity, adding 60 new employees at a cost of $10 million. 

Originally published by GlobeSt Now’s not the best time to be a prospective tenant in an industrial outdoor storage (IOS) facility, according to a new report from Marcus & Millichap.  A combination of strict zoning requirements, unfavorable building-to-land coverage ratios, and municipal development restrictions has confined many developers to traditional industrial properties, suppressing additional supply.  Therefore, existing IOS facilities “have become increasingly coveted by industrial users,” the firm said.  IOS vacancy fell under 3 percent in mid-2022, below the historical average, while IOS rents have advanced by nearly 30 percent on average since the end of 2019. General industrial rents rose 24 percent during the same span.  IOS Investors Seek Shorter Lease Terms  Mark Grossman, investment sales broker and IOS specialist at Northmarq, following the acquisition of Stan Johnson Company, tells GlobeSt.com that industrial outdoor storage has grown from a small niche asset class in the industrial market to a top industrial product type, now with its own subsets and niches.  “We continue to see private and institutional capital specifically target IOS assets, and new investors are entering the market quickly.  “A noticeable trend in recent years is that investors are getting smarter about how to analyze this market and are investing creatively.  “Perhaps counterintuitive to the net lease sector – where the longer the lease used to mean greater value – we are seeing IOS investors seek shorter lease terms as a value-add play.  “There are so many advantages to IOS that make it attractive, but there are barriers to entry as well. This continues to be a fragmented market, there’s low vacancy, very limited supply, low expenses, and significant value-add opportunities. These characteristics are drawing sophisticated and smart money to this space.”  Same-Day Delivery Should Grow 25% Through This Year  Marcus & Millichap said that the global same-day delivery services market is expected to grow by 25 percent through 2022, creating additional demand for last-mile storage.  “Rising fuel costs have also caused firms to place further emphasis on consolidating operations, making the infill nature of IOS particularly attractive. In either case, IOS will play a major role in supporting firms’ operations, efficiently linking the wider supply chain to individual municipalities,” according to the report.  © 2022 ALM Global Properties, LLC. All rights reserved.   

Originally published by Wealth Management With many retailers closing locations during the pandemic, e-commerce sellers took the opportunity to reposition dark stores in urban locations as mini warehouses. But now that the U.S. retail sector seemed to have gained a position of relative strength and many people have eagerly come back to in-person shopping, will that strategy continue to be a sound one?  According to Benjamin Conwell, senior managing director and practice leader for the e-commerce and electronic fulfillment specialty practice group in the Americas for real estate services firm Cushman & Wakefield, demand for “dark stores” in urban neighborhoods is not a temporary fad, but a trend that isn’t going away. That’s because e-commerce and omni-channel operators see them as a cost-effective way to get close enough to their customers to provide 30-miniute to 60-minute delivery, he notes.  High fuel prices and extraordinary growth in industrial rents are helping maintain this demand, since transportation costs now make up a larger-than-ever portion of logistics companies’ spend, notes Brandon Isner, head of retail research for the Americas with real estate services firm CBRE. He estimates that transportation-related expenses now make up between 45 to 70 percent of their total costs. Conversely, fixed facility costs, which include real estate, make up just 3 to 6 percent of the overall figure.  In addition, industrial rent growth over the past few years has far outpaced the growth in retail rents, so it makes sense for e-commerce and multi-channel operators to have a large network of dark store distribution sites, even if they offer just curbside pickup, Isner notes. Over the past year, industrial rent growth across the country has averaged 12.5 percent, according to real estate services firm Savills, and that has been considered a slowdown. During the same time period, retail rent growth has reached only 2.5 percent, according to Isner, and that was the highest level recorded since the first quarter of 2017.  Meanwhile, there are also advantages for using retail locations in urban locations as distribution space that go beyond efficiency of operations, Isner notes. For example, such locations leave an opportunity for retailers to maintain an interpersonal relationship with their customers, rather than relying exclusively on third-party representatives. “And the beauty of using a retail [location] for this type of use is that they are already well-positioned to handle high levels of traffic,” he says.  Who’s occupying dark stores?  Tenants utilizing dark-store space as distribution facilities are commonly retailers that either already have a large e-commerce platform of their own or have partnered with a third-party e-commerce operator, according to Jacob Ryan, an investment sales broker with real estate services firm Northmarq. The pandemic accelerated the demand for direct-to-consumer delivery at a record pace, requiring retailers to quickly find ways to cut costs and get products into customers’ hands as quickly as possible.  “The most logical place to turn was to start leveraging assets already under their control and converting under-utilized retail space to distribution and logistical support square-footage,” Ryan notes.  Many of such tenants are grocers, including Whole Foods and regional grocery chains, according to Conwell, though he adds that apparel and soft goods retailers were early adopters of the dark store concept.  Rapid delivery start-ups, including Gorillas, Jokr, Fridge No More and Gopuff, which promise doorstep delivery of everything from eggs to pizza in as little as 10 minutes, also occupy dark stores. But such concepts initially accumulated a lot of investment capital, some, including Gopuff, opened hundreds of locations nationally and expanded faster than the demand for their services and existing infrastructure justified, notes Conwell. Now, some of them are pulling back.  During the depth of the pandemic, this alternative use helped boost retail occupancy, which endured a myriad of challenges in recent years, from low consumer sentiment to e-commerce competition to supply chain disruptions. That lull in retail activity, however, has ended quickly, according to Isner.  “In-person retail is back,” agrees Ryan. “Consumers emerged from the pandemic in a big way, and discretionary spending data supports that. The in-store experience provides us the touch and feel that we all desire.”  In the third quarter, national retail vacancy averaged 5.0 percent, one of the lowest levels on record, according to CBRE research. And in the first half of 2022, U.S. store openings outpaced store closings by 2,517, notes Isner.  Under these conditions, and taking into account the growth in retail rents, using the dark store distribution strategy is becoming more challenging, he says. But an even bigger challenge is overcoming community opposition to the use of dark stores as distribution facilities, with the corner grocery store becoming a mystery space with paper taped over the windows.  “These don’t go over well with city councils as they don’t make for vibrant streetscapes, notes Conwell. So, while he expects demand for these types of spaces to continue to be strong, “it doesn’t come without hair.”  In New York City, for example, community complaints about dark stores used as rapid delivery sites have caused the city to implement new regulations making it illegal to paper over retail windows and requiring the tenants to open functioning storefronts, according to an Insider report. In order to comply, some of the tenants set up indoor kiosks for online shoppers to pick up their items in-person.  With the strong return of in-person shopping, these tensions may go away by themselves, in Ryan’s view. He notes that he doesn’t expect a big uptick in new leases executed for the specific purpose of using dark stores as distribution facilities. Rather, during lease renegotiations, tenants may ask to use some of their existing in-store space to be converted and utilized for e-commerce needs. 

Prior to the Northmarq acquisition of Stan Johnson Company, investment sales brokers Zach Harris and Jeff Hughes completed the sale of a nine-location portfolio occupied by Empire Roofing Group, a wholly owned subsidiary of Tecta America Corporation. The facilities are located across five states, Texas, Georgia, Florida, Tennessee and Oklahoma, and total 348,824 square feet. Harris and Hughes with Stan Johnson Company (now Northmarq) partnered with Seth Koschak and Jeff Rein of Stream Realty Partners to represent the seller, Empire Holdings - a Fort Worth, Texas-based national real estate services, development and investment company. The Arden Group, a leading U.S. middle-market real estate fund manager based in Philadelphia, Pennsylvania, acquired the portfolio.  “This portfolio transaction presented an attractive opportunity to acquire well-located low coverage industrial properties across some of the top markets in Texas and the Southeastern U.S., all leased to the same reputable company,” said Harris. “Empire Roofing is one of the top commercial roofing contractors in the country and, now owned by Tecta America Corp, they are primed for continued growth and success. Through our direct competitive marketing process, we selected Arden Group and were excited to work with them on this significant acquisition for their new and growing Industrial Service Facilities (ISF) portfolio.”  The portfolio includes nine freestanding industrial buildings ranging from 16,000 square feet to 150,000 square feet, including a newly built Houston industrial building. Approximately two-thirds of the portfolio’s buildings were built between 1999 and now. The properties are strategically located in major industrial markets with low building coverage as well as outside storage or excess land with opportunities for expansion.  “After an extensive evaluation of the nation’s top brokerage teams to assist with this sales process, we selected Stream Realty and Stan Johnson Company (now Northmarq) as our trusted partners,” said Bowie Holland, president of Empire Holdings. “We were particularly impressed with their substantial due diligence on our portfolio and the innovative marketing strategies they brought to the table. We look forward to many more collaborations in the future.”  “This portfolio acquisition is part of our investment focus on ISF, including industrial outdoor storage sites, truck terminals, trailer parking and last-mile port facilities in core U.S. markets,” said Christian Vergilio, Director of Acquisitions for Arden Logistics Parks.  Arden recently formed a $1 billion Joint Venture specifically focused on acquiring ISFs, or low site coverage industrial assets, situated in dense, infill locations. “The Empire Portfolio is emblematic of the types of partnerships we are looking to form with users in the ISF space and we look forward to continuing the relationship with the team,” Vergilio noted.  About Empire Holdings Empire Holdings is a commercial real estate developer that specializes in single-tenant, build-to-suit industrial properties with design, technology, and innovation at the forefront. Backed by a powerhouse team led by 40-year commercial real estate industry vet Sandra McGlothin, Empire Holdings is changing the way commercial industrial spaces are built. Together, the team has already led Empire Holdings to acquire and develop more than 100 properties spanning 1.1 million square feet across five states, with a primary focus on Texas. To learn more about Empire Holdings, please visit: www.empireholdingstx.com

Northmarq’s Ohio-based Rob Gemerchak (formerly of Stan Johnson Company), has completed the sale leaseback of three freestanding industrial buildings in Ashley, Indiana and Flat Rock, Michigan. Together, they total 35,000 sq. ft. Gemerchak represented the seller, Royal Arc Welding, a leading industrial and manufacturing company that executed a new, long-term triple net lease at the time of sale. The portfolio was acquired for $4.2 million by a California-based developer.  “This long-term sale leaseback opportunity was an excellent fit for private equity, family offices and 1031 investors who were attracted to the company’s story, market position and the well-maintained properties strategically located in the active and healthy Midwest region,” said Gemerchak. “It was truly a win-win transaction, as the seller achieved a competitive sale price for their real estate which they plan to reinvest in their growing business. Additionally, the buyer received a long-term passive investment with a great tenant and sound real estate fundamentals.”  Founded in 1983, Royal Arc Welding provides a diverse range of industrial services including the design, installation, inspection and repair of overhead crane systems. Each of the properties include office space, craned warehouse and assembly operations and serve major long-term clients within the Detroit, Michigan and Fort Wayne, Indiana market areas. 

Asher Wenig, investment sales broker in Northmarq’s New York investment sales office, completed the $7.1 million sale of The Cheesecake Factory. The 12,575 sq. ft. freestanding restaurant is located within the SouthSide Works development, at 415 South 27th Street, Pittsburgh, Pennsylvania. Northmarq represented both the New York-based buyer and New York-based seller in the sale.  “Currently experiencing a major rejuvenation, the SouthSide Works is an absolutely terrific mixed-use oasis in the city of Pittsburgh. With the rejuvenation in the area, the new owner of this strong-performing Cheesecake Factory will benefit from major growth in the area given the healthy term, rent and percentage rent outlined in the lease,” said Wenig. “This was far from a cookie cutter deal and took a very sophisticated buyer to understand the ins and outs of the lease and opportunity. It was a very fun marketing campaign where both sides came away winners.”  The Cheesecake Factory has operated at the property since it was built in 2004 and recently extended their lease. The 0.38-acre site benefits from outstanding demographics with nearly 395,000 residents in the immediate five-mile radius and close proximity to two major universities: The University of Pittsburgh (1.9 miles) and Carnegie Mellon University (3.1 miles). Located in the SouthSide Works development, the property boasts walkability, visibility, and plenty of parking.   Adjacent national retailers include REI, ALDI, Urban Outfitters, LA Fitness, and many more. Additionally, the Town Center Square alongside the property will soon be upgraded to include bosque seating, gathering stairs, lawn games and a flex use stage for movies and musical performances, drawing even more visitors to SouthSide Works.  

  Market data, charts & graphs: current and historical trends for single-tenant office, industrial and retail properties, as well as multi-tenant retail Overall market trends Market summary & analysis Economic data points To download a copy of this report, please provide the following information: hbspt.forms.create({ region: "na1", portalId: "7279330", formId: "bb809225-7e92-422a-99c4-b811081e4f61" }); With an absence of new, shocking headlines to begin the second half of 2022, the commercial real estate market continues to face the same external influences that will undoubtedly impact how we end the year. The economic picture remains murky, with inflation and rising interest rates at the forefront of investors’ and consumers’ minds. Fears of a recession still loom, and there has been a noticeable decrease in consumer confidence this year. Additionally, the industry continues to question the future of 1031 exchanges, and the upcoming mid-term elections could impact economic conditions and investor sentiment as well. These trends, however, are balanced by strong job growth, low unemployment, robust consumer spending, and insatiable investor demand for quality assets.  In the single-tenant net lease market, we’ve seen investment sales volume decline over the past three quarters and compared to the record-setting end to last year, current activity levels may feel somewhat lackluster. Put in perspective though, the market is on pace to have a very solid year, perhaps topping the $70-billion-mark and solidifying 2022 as a top three year in history. However, fourth quarter will be telling. The final three months of the year will not only dictate how 2022 gets logged in the history books, but it will also set the tone for 2023.  The multi-tenant retail sector tells a slightly different story, although the same external influences still apply. Post-pandemic, we’ve seen investor interest return in earnest to this asset class, and 2022 is well positioned to be a record-setting year for the sector. While investment sales volume has fluctuated in recent quarters, investors have eagerly been seeking out new developments, quality second-generation assets, as well as value-add opportunities.  Will we see investors apply the brakes in response to uncertain economic conditions and a continued supply-demand imbalance? Or will buyers push to get transactions completed before year-end resulting in an uptick in activity?   

Northmarq’s Atlanta-based investment sales broker, Jeff Enck (formerly of Stan Johnson Company), completed the sale of Towne Crest Village located at 2081 Jonesboro Road in McDonough, Georgia. The 20,053 sq. ft. retail strip center was 100 percent leased to 10 tenants at the time of sale. Enck represented the Fort Myers, Florida-based private buyer. The seller was an individual investor based in Los Angeles, California. The asset was acquired for approximately $5.7 million.  “Well-maintained and well-leased retail properties like Towne Crest Village continue to be highly sought after, despite the rise in interest rates,” said Enck. “We were happy to receive multiple offers on the property and closed with a California-based 1031 exchange buyer who purchased the property all-cash.”  Located in the main retail corridor of McDonough, Georgia, the property was constructed in 2005 and is situated on a highly visible 1.75-acre site. Towne Crest Village features a mixture of local businesses including service and restaurant retailers, and all tenants operate on staggered leases with annual rental increases. The strong retail trade area has only 1.1 percent retail vacancy within one mile of the property, and neighboring tenants include Target, Home Depot, Ross Dress For Less, Marshalls and more.