CPN - September 2008 - (Page 31) INDUSTRY PULSE DEVELOPMENT Of course,build-to-suits are hardly springing up on every corner. Corporations, like developers, have been tightening their belts, striving to stay in existing space as long as it fits their needs.“If (the space) will work for you, it’s a very economical choice,” Sanders said. Firms that do need a change of scenery often find obsolete floorplates and mechanical systems and small parking allocations in their searches. Build-to-suits could prove more cost effective than retrofitting. Consolidation might also lead a corporation to go with a build-to-suit that allows a more efficient floorplate, noted Koll Development Co. CEO Steve Van Amburgh. Corporations often desire specialized space and the ability to manage it, noted Trammell Crow Co. president of Southeast operations Matt Khourie. The General Services Administration, for example, requires that certain agencies not share space with other tenants. Highwoods has developed a number of appropriate build-to-suits, including a 112,000square-foot FBI field office in Tampa that came online in December 2005. Build-to-suits also offer an easy avenue to green building. Koll Development delivered a 300,000square-foot LEED gold-certified regional office for Chevron Corp. in Covington, La., earlier this year. Non-core markets, which offer fewer speculative projects, display a greater need for build-to-suits, and lower labor costs in such areas can make them feasible. On the other hand, core-market cap rates have fluctuated less, according to Sanderson, motivating build-to-suits. —Reach associate editor Amanda Marsh at amanda.marsh@nielsen.com. EMBARKING ON COMPLEX REAL ESTATE TRANSACTIONS AND NEED EXPERT ADVICE? GET THE POWER OF DUFF & PHELPS. From valuation and due diligence to cost segregation and corporate real estate management consulting, the Real Estate practice of Duff & Phelps provides trusted analysis and insight on critical issues. With more than 1,200 employees working together across North America, Europe and Asia, we have the depth and breadth of industry and technical expertise to meet your needs. Get the strength of one of the world’s leading independent financial advisory and investment banking firms. Speculative Space Keeps Industrial in Check Excess speculative construction in core markets has decreased the need for build-to-suit industrial projects. The sector has also been feeling the heat of the U.S. economy, leading many tenants to take what is available, according to Kevin Matzke, senior vice president & regional manager for Higgins Development Partners L.L.C. That said, speculative developers have increased activity during the past year, and 70 percent of the total square feet under construction is not yet leased, according to a July report from Marcus & Millichap Real Estate Investment Services Inc. Demand for industrial space is easing, and the company expects the average vacancy rate to rise 70 basis points to 10.2 percent by year-end. Many of the build-to-suits going up are for tenants that want more space than speculative developers have been willing to build and for those that want to improve their bottom lines by occupying more-resourceful space. Elevated fuel prices and rising production costs have made efficient logistics necessary and increased the popularity of newer, modern industrial properties, according to the Marcus & Millichap report. But developers have not been replacing speculative space as tenants sign leases, Matzke reported. That bodes well for build-to-suit opportunities once the speculative space leases up and market activity resurges. > > > > > > > Financial Reporting Valuation Tax Services Real Estate and Fixed Asset Services Investment Banking Corporate Finance Consulting Restructuring Advisory Services Dispute and Legal Management Consulting duffandphelps.com Merger and acquisition advisory services are provided by Duff & Phelps Securities, LLC. Duff & Phelps Securities, Ltd. is authorized and regulated by The Financial Services Authority. www.cpnonline.com • September 2008 • COMMERCIAL PROPERTY NEWS 31 http://duffandphelps.com http://duffandphelps.com http://www.cpnonline.com
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