Industrial Midwest

Certain industries poised for growth

The commercial real estate industry cannot look to the entire marketplace to be relocating and expanding its operations. Instead, it must look more carefully at specific growth industries/industry segments.

By Corey Chase

Podolsky Northstar CORFAC International

Economists continue to point to a near-term climate that will be void of sweeping, across-the-board gains in employment. Most companies have learned or are learning to use people and technology to improve efficiencies and hold the line on costs.

The commercial real estate industry cannot look to the entire marketplace to be relocating and expanding its operations. Instead, it must look more carefully at specific growth industries/industry segments. Three industries showing great signs of promise include:

  • Chemical—2009 and 2010 were very good years for the chemical industry, and 2011 is generally seen to be increasing further over 2010 levels. The strength of this industry is due to the global increase in demand for chemicals and chemical-related products. A strong chemical industry in the United States will help employment and other types of expansion, including the development, leasing and sale of commercial real estate.
  • Food/Food Related—This industry shows great promise. Increasingly, retailers are expanding into the food business. As they expand their coverage, or establish new lines, it adds an increased demand for the food supplies and the equipment (freezers and coolers, e.g.) to conduct business. Dollar General, for example, recently announced it would add 625 new stores nationally, with many of them selling food items. This expansion is similar to efforts by Target, Meijer and Walgreens, among others, to capitalize on consumers’ busy lifestyles and efficiency needs.
The increase in sales of/demand for organic foods is another significant development in the food industry. U.S. purchases of organic foods have increased 70 percent over the past four years, with organic meats a significant growth driver. The U.S. is the largest importer of organic foods in the world. Because of the health benefits associated with organic foods, growth trends aren’t likely to subside any time soon.
  • Transportation, Shipping & Logistics—More than 90 percent of world trade is done by international shipping—rail, air, ship, etc. —due to advanced globalization and declining trade barriers. The continued growth and expansion of this industry is a direct result of the concerns for congestion, emissions and high fuel costs. A 2010 study found that 75 percent of transportation companies feel upbeat about their industry in 2011 and beyond.
Many companies look to improve efficiencies and reduce costs wherever possible. Those with significant shipping requirements will continue to move closer to intermodal operations that allow them to harness the benefits of transporting efficiencies. Additionally, they will use other means, such as specialized racking and conveyor systems, to enhance operational efficiencies of the buildings they lease, acquire and develop.

Real Estate Implications and Incentives

These three examples represent where significant future growth and focus likely will take place, from both a real estate and economic development/incentive perspective. In spite of the current state of the market—with the vacancy rate more than 12 percent and large blocks of space available in virtually all markets—some of these industries may find inventory in short supply because of highly specialized requirements such as freezer/cooler space or expansive ceiling heights.

This may result in build-to-suit options or substantial renovation programs to create facilities that satisfy the operational needs of some of these specialty companies. Growth potential—jobs, taxes and other income—makes these industries prime candidates for economic support.

Each year, local municipalities as well as county and state governments budget millions of dollars in grants, incentive programs and tax credits to attract and retain jobs. Incentives vary from one jurisdiction to another. For state, county and local governments, the creation and retention of jobs is a key benchmark.

To be most effective in establishing a strategy for securing economic incentives, which may be critical to closing a deal, it is essential to conduct a thorough review of a company’s situation and overall requirements. That review categorizes critical needs and factors that are unique to a company. It also leads to the completion of economic impact calculations, which allow us to demonstrate to governmental authorities the benefit brought about by their potential “investment” in a company.

The typical project will involve potential incentives available from the federal, state, county and municipal governments, as well as special industry development agencies, utilities and private interests. Beneficial incentives typically fall into statutory credits and negotiated incentives.

Available incentives include:

• Grants

• Infrastructure improvements

• Employee training

• Employee recruitment assistance

• Job creation tax credits

• Property tax abatements

• Tax increment financing (TIF)

• Technology credits

• Income tax credits

• Enterprise zone credits

• Historic designation credits

The coupling of skilled real estate and incentive program negotiations with other elements of creative advisory services can make a significant contribution to the resources available to operate a business. These resources—from job training to tax credits and abatements—can help companies create the competitive edge they need to be successful, in any business environment.

Corey B. Chase is a principal with Podolsky Northstar and the 2011 President of AIRE. He is a 25-year industry veteran and has successfully negotiated a variety of economic incentives for numerous businesses.