CREJ

March 2022 — Office & Industrial Quarterly — Page 27 www.crej.com INDUSTRIAL — MARKET OUTLOOK year. He is told by the sales manager that of the $12 per sf increase, $3 is attributed commodity increase while the other $9 is related to a supply/ demand imbalance. At their worst in 2021, lead times were nine months for steel, and the contractor is relieved to hear that they are now closer to six months. Copper, insulation and PVC pipe all have measurable increases and he shrugs as he knows this cost will be passed on to his clients: the develop- ers. Although the developer “overpaid” for the ground and blew through the initial budget, the project was an immense success after selling for a 3.5% cap. The building supply company was nervous to take on such a large increase in rent but was able to take on more inventory, which doubled sales. The contractor navigated a year of sup- ply chain issues and price increases so adeptly that he increased his construc- tion pipeline over 3 million sf. The Denver industrial market is no stranger to this type of story. As ana- lysts, speculators and investors try to make sense of these dynamics, many have faith that real estate is an asset class that is well protected from infla- tion. As inflation in the country hits its highest rate since 1984, the situation is volatile, and predictions are challeng- ing to make. To combat this, the shrewdest indus- trial investors have adjusted their strategies to hedge this risk. Most notably, long-term leases (leases for more than 10 years) are viewed as encumbrances to unlocking future value rather than durable long-term cash flow. There have been many instances where a tenant has asked for a 10- to 12-year lease and the devel- oper prefers five to seven, a very coun- terintuitive market trend. A standard market rental escalation was 2.5% to 3%; many landlords now are asking for 4% or increases tied to Consumer Price Index. Triple-net leases still allow for uncontrollable expenses such as taxes and insurance to be passed to the ten- ant. Unlike other asset classes (i.e., the stock market), real estate acquisitions are an “imperfect information market.” Therefore, returns can be maximized with better intel and access to oppor- tunities. There is no doubt that the price of almost everything is increasing for Denver industrial real estate. The primary questions remain: Is it at a sustainable level and how long will it continue to occur? Investor sentiment is at an all-time high, with Denver recording its strongest year in terms of volume at $2.4 billion. The largest indication as to whether this period of inflation is “transitory” or not will be the ability to remedy the supply chain and stabilization of the labor market. Both of these headwinds appear to be headed in the right direction as we exit the pandemic. The timeline for return- ing to a more historically consistent rate of inflation is unclear, however, many investors will continue to look to industrial to endure during a time of much uncertainty. s nick.rice@colliers.com Continued from Page 17 CREATING DEEP ROOTS FOR OVER 100 YEARS > UPROPERTIES.COM helps decrease the isolation com- monly associated with the industrial sector; and supporting long-term employment builds careers and orga- nizations. Our mission at Fitwel is building health for all. At the core of this mission is our commitment, first and foremost, to prioritizing the health of everyone impacted by the development and operation of a building because, when we do, all of us benefit. Owners benefit because health enhances the bottom line. Employers benefit because they’re able to attract and retain top talent. Investors ben- efit because the health-centric strate- gies outlined in the report often are cost-efficient, increase retention and resale value, and bolster an asset’s attractiveness as a worthwhile long- term investment. Occupants benefit because these people-first priorities reduce injury and absenteeism, lower stress levels and lead to increased overall job satisfaction. Ultimately, the broader population benefits from these dynamic deci- sions because optimizing workplaces supports industrial workers and strengthens our global infrastructure and supply chain. It’s critical that we provide action- able guidance for organizations to make the healthier, human-centric commitment to develop a “new and improved” normal for industrial spaces – one where the benefits are undeniably universal and the chal- lenge to meet market demand has become a global calling for total mar- ket transformation. Learn more at fitwel.org/industrial- optimization-report. s sonja@centerforactivedesign.org Trierweiler Continued from Page 24 platforms will signal UV trucks to travel because the industrial IoT plat- form automatically processed data received from the distribution facility. This building-vehicle communication operates the same way for procure- ment and last-mile fulfillment, as a smart supply chain management system. Smart manufacturing, oth- erwise known as Industry 4.0, is part of the industrial IoT ecosystem. Like smart supply chain management, smart manufacturing is where the manufacturing process operates as a cyber-physical system. Additive manufacturing (3D printing), robotics, building systems and processes will be signaled into an autonomous, or human-assisted autonomous produc- tion, from data the CPS management system receives. Industry 4.0 value will be in the data it receives from the con- sumer. This consumer data is collected from smart devices and pedestrian occupants of the smart grid urban infrastructure of smart cities. From mobile device to doorstep, this user data loop is part of the intercon- nected industrial revolution we are in today, the result of an evolution- ary culmination of multidisciplinary integration. Highly connected global supply chains and smart manufactur- ing play a key role in reducing waste, improving energy efficiency and low- ering our carbon footprint as we seek to build a sustainable future. Smart industrial is the way forward. s Maynard Continued from Page 26