What should the
occupiers of industrial buildings be thinking
about during the
Understanding how users are coping and adapting to the pressures they're feeling from COVID-19.
Please change to: While the majority of industrial occupiers are running at full speed to keep their manufacturing footprint humming, others are looking at liquidity strategies to generate cash.
JLL's Industrial Integrated Property Service lead, Trevor Ragsdale sits down with James Cook to talk about how those that occupy industrial real estate can incorporate tactics to preserve their business.
[00:00:00.39] [James Cook]
What should the occupiers of industrial buildings be thinking about right now during this unprecedented COVID-19 crisis? Today, we're [00:00:10.0] going to find out. This is building places where we look at the world of commercial real estate through the eyes of the experts that study it every day. My [00:00:20.0] name is James Cook. I research real estate for JLL. And today I'm talking with Trevor Ragsdale.
[00:00:27.23] [Trevor Ragsdale]
And I'm an executive managing director with JLL's [00:00:30.0] Integrated Portfolio Services Business. And I work directly with industrial end users.
[00:00:38.19] [James Cook]
Today, we're gonna talk about [00:00:40.0] how users of industrial space are coping and adapting with the pressures that they're feeling from COVID-19. [00:00:50.0] This is not being felt equally across the board. Who who's really suffering the most right now?
[00:00:56.96] [Trevor Ragsdale]
You know, unfortunately, our retail clients are really suffering in [00:01:00.0] the current economic conditions. Other industries, our e-commerce clients and clients providing essential services are accelerating through this. [00:01:10.0] As you can imagine, responding to the needs of consumers, staying at home and having to adapt to new ways of life. And then all of our other customers that are kind of in-between [00:01:20.0] have paused and they're waiting for more information before they make any long term decisions.
[00:01:30.18] [James Cook]
From [00:01:30.0] an industrial property standpoint, does that mean that no one is going to lease space at all?
[00:01:35.72] [Trevor Ragsdale]
Actually, quite the opposite. We've seen we've seen quite a bit of leasing continue [00:01:40.0] to occur. E-commerce demand is is way up since the beginning of the year, 30 to 40 percent. By most accounts. And [00:01:50.0] we do anticipate that as much as 50 percent of all of the absorb industrial leasing volume through the end of this year will be driven by e-commerce [00:02:00.0] companies.
[00:02:00.99] [James Cook]
How are you working with clients right now to assess where you know your corporate clients? How are you working with them to assess [00:02:10.0] the current situation?
[00:02:11.55] [Trevor Ragsdale]
Great question. I mean, obviously, that's all over the board. Most of what we're doing today is still really tactically focused on what's right in front of us and [00:02:20.0] trying to figure out where we can seek rent relief or rent deferral or other [00:02:30.0] accommodations from landlords with our clients who are most severely impacted. And then other clients are really starting to look more strategically across their portfolio to understand [00:02:40.0] where are their in-place rents compared to today's market rents. Where do we anticipate that there could be opportunities and or market [00:02:50.0] risks really starting to look at their distribution networks in their manufacturing footprint to determine whether or not they're distributing product from [00:03:00.0] the appropriate locations or manufacturing the product in the right locations. And also looking at liquidity strategies in terms of what could [00:03:10.0] they do to generate cash through some owned assets, whether that be sale leaseback strategies or other modernization strategies that our clients are exploring [00:03:20.0] in the capital markets.
[00:03:22.29] [James Cook]
I know that in the retail world right now, it's it's pretty dire as as far as the percentage of tenants [00:03:30.0] that are requesting rent relief. It's I'm assuming it's not that bad in industrial.
[00:03:35.88] [Trevor Ragsdale]
We've been tracking this weekly and we are surprised we [00:03:40.0] haven't seen as many requests as we would likely anticipated so far in April the data that we're tracking shows that just over 10 percent of [00:03:50.0] US industrial tenants are seeking or have sought some form of rent relief. You know, it's a little bit early days and a little early to tell, [00:04:00.0] and we're anticipating that that's going to be a more central issue as we continue through the month of May and June and possibly further. [00:04:10.0]
[00:04:10.8] [James Cook]
And for the industrial tenant, the occupier of space that's listening to this podcast right now. What's your advice for them [00:04:20.0] on how to handle this?
[00:04:21.75] [Trevor Ragsdale]
We've actually put together a playbook that we're sharing with clients. I think that the one fundamental kind of baseline [00:04:30.0] is be current with your read before engaging in a conversation with the landlord. You certainly don't want to be in a position where [00:04:40.0] rent is due or the landlord has put or is going to put the tenant in default before entering into those conversations. So I think it's also important [00:04:50.0] that tenants need to understand that we've seen unilaterally across the landlord spectrum that landlords are requesting [00:05:00.0] financial statements, COVID-19 Business interruption planning, COVID-19 business recovery planning at a minimum.
[00:05:09.23] Before they even review [00:05:10.0] in red defer or rent abatement requests.
[James Cook]What kinds of questions about the future should we be tracking? Should we be thinking about?
[00:05:19.08] [Trevor Ragsdale]
So the majority [00:05:20.0] of their kind of long term strategic conversations are going to be around the supply chain and manufacturing and operation planning. And [00:05:30.0] so we're starting to see a lot of customers asking how will global supply chain dependencies evolve? Will we see a restoring [00:05:40.0] of manufacturing? We're asking questions around growth in the last mile delivery, warehousing, especially based upon [00:05:50.0] an increasing percentage of safety stock that our clients are going to want to hold in close proximity to population [00:06:00.0] centers. We're also asking questions about the acceleration of using automation and robotics across [00:06:10.0] manufacturing and distribution. And also that there are going to be significant changes in environmental health and safety policies and warehouse design as [00:06:20.0] it relates to ensuring the health and wellness of workers.
[00:06:24.59] [James Cook] Well, Trevor, I want to thank you so much for your time today. I'm sure you are a busy man and I really appreciate it.
[00:06:30.16] [Trevor Ragsdale]
Yeah, [00:06:30.0] you bet.
[James Cook] Do you have a comment on today's episode or maybe a question you'd like for us to tackle on a future episode? Tell us about it. Leave us a message on the [00:06:40.0] podcast hotline and we'll use your voice on an upcoming show. Call us at six zero two six three three four zero six one [00:06:50.0] and be sure to tell us your name and where you're calling from. You can subscribe to building places on the iPhone podcast app Spotify [00:07:00.0] or wherever it is you get your podcasts. For the latest research about commercial real estate, visit JLL dot com. If [00:07:10.0] you'd like to learn more about retail real estate, listen to our sister show. It's called Where We Buy. It's a show where we talk with retail experts and visit [00:07:20.0] the places where we buy.