Last year, when DirecTV, a leading digital television service provider based in El Segundo, Calif., chose Tulsa, Okla., for a 1,300-person customer service center, it decided on 93,000 square feet of existing office space.
Earlier this summer, Benefitfocus.com, Inc., a leading provider of employee benefits software and services for use via the Internet and touch-screen kiosk, announced that it will expand to a larger office facility located on Roper Mountain Road in Greenville, S.C.
They say that beauty is in the eye of the beholder, and that is certainly the case when it comes to real estate.
If you are a real estate investor, or just happen to be trying to sell a particular piece of property, high vacancy rates are the last thing in the world you want to see. After all, in our supply-and-demand world, an abundance of property on the market tends to drive prices down. That’s because you’re a seller, not a buyer.
But what if you’re a buyer? What if, rather than looking for property as a form of investment, you’re looking for property in order to open up a new manufacturing facility, or call center, or regional headquarters? All of a sudden, the perception of what is a good market and what is a bad market is reversed.
From the buyer’s perspective, if you encounter a city with high vacancy rates and low real estate prices, it’s like being a kid in a candy store.
| Most experts agree that somewhere between two-thirds and three-quarters of all facility site searches end up selecting an existing building. The reason for this boils down to two things: time and money. |
This is particularly true for companies that are actively engaged in the site location process — companies looking for the best location for a new operating facility.
Regardless of whether you are looking for office or industrial space, the more real estate product on the market, the greater the likelihood that your company will find something that at least comes close to meeting its needs. The fact that greater selection also almost always means lower prices simply makes these communities even more attractive.
Most experts agree that somewhere between two-thirds and three-quarters of all facility site searches end up selecting an existing building. The reason for this boils down to two things: time and money.
When a company decides that it needs to open a new facility, it wants it to be up-and-operating as quickly and as cheaply as possible. That imperative tends to drive most companies to look at existing buildings and, like everything else in the site location process, real estate availability and price vary dramatically from city to city.
That’s why, for the past seven years, Expansion Management has published its annual Top 40 Real Estate Markets ranking of the best metros for low prices and wide selection of commercial and industrial real estate.
Topping this year’s list of the Top 40 Real Estate Markets — from the perspective of companies actively engaged in the site location process — is Tulsa, Okla., followed by Greenville-Spartanburg, S.C., El Paso, Texas, Columbus, Ohio, and Albuquerque, N.M.
Rounding out the top 10 are Cincinnati, Ohio, Memphis, Tenn., Birmingham, Ala., Greensboro/Winston-Salem, N.C., and Oklahoma City, Okla.
A Look Behind the Numbers
As in years past, the primary sources of data for the Top 40 Real Estate Markets ranking are The National Real Estate Index (NREI), which is produced by Global Real Analytics (www.nrei.info); Grubb & Ellis’ Office Market Trends and Industrial Market Trends (www.grubb-ellis.com); and RS Means’ Construction Cost Index (CCI), a product line of Reed Construction Data (www.rsmeans.com).
These rankings are created from the perspective of you, the business executive looking for maximum choice at the lowest price. Therefore, high vacancy rates and low lease, purchase and build rates are considered good, while the opposite (low vacancy rates and high costs) is considered bad.
Lower costs — whether you decide to lease, by outright, or build it yourself — are a major consideration in any business transaction (and any personal transaction, too, for that matter). Everything has its price, but the lower the better.
And, if your company either can’t find the right building or simply chooses to build its own facility, we have also factored in new construction costs for each of these metro areas.
We have also broken down each metro’s real estate “market” into three distinct segments: the downtown central business district (CBD); the suburban office market; and the industrial/warehouse market. Obviously, depending upon your company’s facility needs, you would want to look at that particular market segment.
Unlike in years past, this year’s ranking also looks at cost trends, both rental and purchase, over the past 12 months.
Finally, these rankings were created based upon data received from the above-mentioned sources (NREI, Grubb & Ellis and R.S. Means). For the most up-to-date and detailed information on a specific metro area, you should consult those companies.
Some Other Interesting Opportunities
While the purpose of the Top 40 ranking is to highlight cities with an abundance of reasonably priced buildings, your company’s particular business requirements may dictate locating somewhere entirely different.
Sometimes, evaluating lease and purchase costs is not the only way to reduce your initial real estate costs. For example, property located within the confines of an enterprise zone can often be had at dramatically reduced costs. While enterprise zones go by various names — empowerment zones, empire zones, opportunity zones, etc. — but the function essentially the same.
They are almost always located in “economically distressed “areas where the local government is willing to offer significant incentives in return for a company establishing a facility that will provide jobs to the people who live within the boundaries of the zone.
Don’t let the term “economically distressed” turn you off. We’re not taking about a place that reminds you of the set of the Mad Max movie. Rather, these locations usually were once vibrant industrial sites that now sit idle.
While establishing an enterprise zone is normally how a community goes about trying to attract new investment to its unused industrial sites, some states also use specifically targeted tax incentives.
An example is Michigan, with its “brownfield” tax credits.
Earlier this month, the Michigan Economic Development Corp. announced that it had approved a $7.5 million state brownfield Single Business Tax credit, along with a state tax capture valued at more than $10.5 million, to Michigan Street Development LLC.
The company plans to take an underutilized site located across from the Van Andel Institute in downtown Grand Rapids and transform it into a medical and life sciences research complex. The $120 million redevelopment is expected to create more than 2,000 new jobs. The tax credits will be used to demolish existing buildings and clean up the site.
The developer will construct four new buildings that will provide 700,000 square feet of life science research and technology space and help anchor the city's emerging life sciences corridor. The complex will also include a 2,300-space parking deck to be co-owned by Spectrum Health, the Van Andel Institute and Michigan Street Development LLC.
You don’t have to look in the large metro areas, either, in order to find incentive programs that will help make existing property even cheaper. After all, that’s what incentives are designed to do — to compensate for things that might not otherwise make good economic sense.
However, if you want to go by pure supply and demand, without all the complicated maneuverings associated with government financial incentives, price and availability are still the best yardsticks — and that’s exactly what the Top 40 list offers.
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