The most active commercial real estate category over the last several years in terms of leasing activity, new construction and in the sales market has been industrial product. New construction has been leaning towards Office Warehouse and Bulk buildings, as tenants are implementing new racking systems and growing upward to optimize their space. On the surface, this trend sounds like it will leave behind the lower clear height Flex and Office Showroom buildings. However, Flex and Office Showroom buildings are finding new interest through creative amenities, repositioning and better vacancy preparations that are adding entirely new tenant prospect types and reinventing what an Office Showroom building can become.
The ability to target a wider potential prospect pool including office users, some retailers and non-traditional industrial users, is very much reliant on proper vacancy preparation to be able to show the space as a true blank slate. Through white-boxing the space, owners can show that the space has high ceilings with an industrial feel, an aesthetic that many office users are interested in, but at a significantly lower price point versus many office buildings. Another benefit includes ample parking, often directly in front of the building.
Earlier this year, Marvin Windows and Doors refurbished roughly 20,000 square feet of industrial space to fit the company’s culture in Eagan. The interior is bright and is accented with sliding glass office doors and more space orientated for team collaboration, including free-standing meeting rooms that look like small houses. The unique space and build-out allows Marvin to show off their window and door products as a type of informal showroom for visitors.
In Plymouth, Energy Management Collaborative (EMC) migrated less than a mile south from their previous location into the remodeled Vicksburg Business Center, which had previously been vacant for several years. The owners decided to add more windows and properly white-box the space, creating a ceiling grid and building up the sprinkler systems. Soon after these improvements were finished, they landed EMC for 42,000 square feet. With TI complete, EMC found a new home with a lively atmosphere and open environment that fit their company culture and at industrial rental rates.
Another example of this strategic repositioning is Baker Tech in Minnetonka. Under new ownership, the 1980’s single-story campus has landed eight new tenants following renovation, white-boxing and rebranding, as well as bringing in amenities such as tap rooms and food trucks to continue to build energy and activity into the business park. All these improvements do cost money, but the success of these projects has shown that investment in differentiators and properly preparing industrial vacancies increases the chances of landing new tenants.
Non-traditional users are also influenced by the activity seen around the industrial market and are noting the functionality they receive from Flex spaces, many times also looking to reinvent themselves. Examples here include users from all industries, from the growing pet industries to indoor entertainment, to companies who want to house larger showrooms for products they sell. Often, opportunities for non-traditional users tend to be highest in first-ring suburbs within the interstate beltway of I-494 and I-694, where close location to the urban core becomes another strong selling point.
Redefining what makes an industrial user, such as white-boxing and adding amenities seen in office buildings, can help industrial landlords draw from a larger pool of tenants and improve the leasing velocity and rental rates in Flex and showroom buildings. This recent swing of significant improvements to outdated buildings is a trend that can
continue to be a boom for investors by offering unique space at competitive pricing in an environment of rising construction costs and rental rates for tenants.
Colliers International | Minneapolis - St. Paul
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