In-fill vs. greenfield. East Coast vs. West Coast. A panel of development experts took the stage at I.CON ’15 to explore the prospects for reinventing, reinvigorating and rebuilding the industrial base in urban locations.
Led by Andrew Mele, principal with Trammell Crow Company, panelists were Kirk Johnson, executive vice president/chief investment officer, Watson Land Company; Bo Farkas, senior vice president, Sitex Group; Brett Dedeaux, principal, Dedeaux Properties; and Jay Olshonsky, president, NAI Global.
So what’s driving the trend toward in-fill development? Simple, says Olshonsky, who lives and works in Manhattan. It’s the 200+ boxes delivered to his apartment building every day and the refrigerated Fresh Direct truck that sits on his block. Consumer demand for everything under the sun, including fresh groceries (interesting tidbit: only a three-day supply of food is available on the island of Manhattan), generates necessity for retailers to be as close as possible to the user. In-fill makes it possible, and this demand is happening across the globe – from London to Chicago to Los Angeles and beyond.
Watson and Dedeaux, both based on the West Coast, say the same. Although Southern California is an in-bound market served by the ports, industrial tenants still want to move as fast as they can to deliver goods to retailers and consumers – particularly for sensitive products like seafood – and want to eliminate opportunity for spoilage.
The coasts clashed on the ease of entitlements for in-fill. From the East Coast, Farkas says the hardest part of any entitlement process is managing people and communities that have a vested interest in the land, with traffic and transportation concerns leading the objections. On the West Coast, Johnson says in-fill in his Southern California markets have typically been easier to entitle, as the surrounding properties have similar entitlements already in place.
So how does a developer decide if in-fill is worth it? The biggest consideration, says Dedeaux, is environmental issues. He says his company typically finds that the landholder hasn’t done extensive research on what he calls “uncharacterized environmental issues” – so then, between the buyer and the seller, they must decide who will do this important research and who pays for remediation. Given the agreement and results, the buyer has to decide if remediation costs are worth the project. This is hugely time-consuming, he says – one infill site might take the time of three greenfield sites.
Are users more accepting of remediated sites than they were 10 years ago? Depends on the user, Olshonsky says. Sophisticated users may be, but tenants don’t want anything to do with the remediation risk unless they are a part owner or developer.
What’s the future and what could impact in-fill markets? Johnson says increased costs around the world may have an impact. If China becomes too expensive, it’s going to change the global supply chain. Fewer TEUs coming into the West Coast ports could negatively impact in-fill markets. Farkas says items that are “engineered to order” – like sneakers that can be custom-designed by the buyer and are specially made – will yield increased usage of in-fill buildings who will house these types of automation and technology industries. With technology’s rapid increase, he says, the sky’s the limit.