Retail, Industrial Sectors Poised for New Development

ATLANTA — Rising construction costs and a shortage of labor are slowing the progress and timeline of new commercial real estate development, despite demand for new space in some property sectors.

“There is an increased cost profile of putting new projects in place,” said Kurt Hartman, senior managing director with Hines. “Development costs are way up. The rents required to support new projects are way up, which is more supported in some product types than others.”
Hartman delivered his comments during a panel discussion Tuesday, Oct. 8, at the Westin Buckhead Hotel titled “The Outlook for Development in 2014.” The law firm of Morris, Manning & Martin LLP and France Media’s InterFace Conference Group jointly produced the daylong event that attracted hundreds of investors, developers, lenders and financial intermediaries from across the Southeast.
src= panelists included Mark Toro, managing partner with North American Properties; Jim Jacoby, chairman, CEO and founder of Jacoby Development; Hunter Richardson; managing director of development for Oliver McMillan; and Lawrence Callahan, CEO with Pattillo Industrial Real Estate.
Because rents are simultaneously increasing with construction costs, the panelists agreed that the only two types of development that will substantiate those rent increases are e-commerce distribution facilities and experiential retail projects.
“A lot of retail stores are closing down. Fulfillment centers for e-commerce is what’s popular right now,” said Callahan.
“The future of retail is industrial,” added Toro, referring to the growth in fulfillment centers.
While the panelists predicted that industrial facilities for retailers will become increasingly popular in the near future, they also agreed that the urbanization of retail projects will prevail.
“Providing people with a place to be is critical,” said Hartman. “People still enjoy the shopping experience.”
Two master-planned Atlanta area projects that will deliver experiential retail include North American Properties’ Avalon in Alpharetta and Oliver McMillan’s Buckhead Atlanta. Both Toro and Richardson said the original scope of the projects had to be scaled back in order to reflect market conditions.
The discussion concluded with the panelists agreeing that the nature of real estate development will begin focusing once again on location, location, location.
“Consolidation [of space] is key,” Hartman said. “In terms of new development, expect to see urbanization and intensification continue.”
— Brittany Biddy

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