Per our second quarter
Market Advisor, new construction in northern Nevada’s industrial sector continues to grow. There are several new projects being managed by Scannell, Pannatoni and Dermody Properties. These developments are experiencing activity before completion, due to a high demand and a low vacancy in the market. New construction usually goes hand-in-hand with build-to-suit opportunities, which have their own pros and cons.
Benefits of Design/Build-to-Suit
Customization: As a tenant in a build to suit, you have the advantage of moving into a space that has been constructed and designed with your use in mind. This is especially important to tenants with very specialized criteria – additions like lab space, break rooms, unique electrical distribution, additional plumbing and drains, etc., can be very expensive in a pre-existing space. That’s especially true in our current market – landlords have no need to accommodate customizations your space when there are multiple potential tenants clamoring for their space.
Presentability: If it is pertinent to your business to present a professional or high-end façade to your customers or partners, new construction buildings typically achieve that. This isn’t necessarily the case for older buildings.
Efficiency: Customization enables the space to be utilized in a more efficient manner, which can contribute to a cost saving for the tenant. Wasted or underutilized space usually means wasted dollars.
Latest and greatest: New construction means that the building systems are brand new, with innovative and efficient technology. Additionally, most builders are using energy efficient building materials, another way to reduce your operating expenses).
Singular Responsibility: With both design and construction in the hands of a single entity, there is one point of responsibility for quality, cost and schedule adherence. The designer-builder is motivated to deliver a successful project by fulfilling multiple objectives. If you are a tenant with a specific build out for any space you occupy, a build-to-suit could save you time and money.
Disadvantages of Design/Build-to-Suit
Longer Term: Most build-to-suit landlords require a longer term. However, in the current market, tenants are having to commit to a minimum of three to five years in most instances regardless, so this point becomes less relevant.
Cost: Due to new construction costs, your base rental rate and triple net costs could be on the higher side.
Strict credit requirements: You will likely have to present stellar financials in order to secure the space, as the owner is going to be investing in your future by building a custom space for your business. However, there are ways to navigate around this, including credit enhancements that might include heftier security deposits or personal guarantees.
Timing: In a perfect world, construction will be completed on time and the builder will never run out of money. However, we’ve all heard the horror stories about projects that take years to complete due to lack of investor financing. Depending on what stage the project is in, you could be taking a risk with your timeline and estimated date of completion. There is less of a risk if the majority of the work is done and you are only building out the finishing touches.
Is Build to Suit Right for You?
Deciding if build-to-suit is right for you can be complicated and needs to be analyzed carefully. There are several factors that should affect your decision, including warehouse vacancy, rental rates, and location. Partnering with an experienced industrial agent who has inside knowledge of these projects puts tenants at an advantage. Businesses relocating to Reno or Sparks should understand that there is a tight network of professionals in the industrial sector, with massive benefits to hiring an industrial agent that is up to date on the latest construction projects. For more information, please contact Ali Forma and Miller Industrial Properties.
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