Allen Gump: A Tale of Two Industrial Markets

Allen Gump

I recently attended two real estate conferences—one for Colliers and the other for SIOR. The conversation with brokers in other markets is remarkably the same as what we are experiencing here. We’re seeing the emergence of two markets—the big tenant market versus the smaller tenant market.

The larger deals are getting done, but the smaller deals are still having a slow go. The large companies don’t have same issues as the smaller companies. To paraphrase the old saying, “You’ll find the only difference between the rich, big businesses and other smaller ones is that the rich have more money.”

Whether it’s lack of credit or business uncertainty, or a combination of the two, expansion by local and regional businesses is still sluggish. We all hear how the small spaces are the toughest to get leased.

In the last few weeks we’ve seen several very large deals signed. Majestic leased its 1 million-square-foot building in Lewisville to Kellogg. Kohl’s is reportedly doing a build-to-suit with Hillwood in DeSoto. Home Depot has completed its 800,000-square-foot-plus deal in South Dallas. GE Transportation has completed its 670,000 SF deal with IDI for the new manufacturing facility in Fort Worth. And Nebraska Furniture Mart is building a $1.5 billion, 430 acre complex in The Colony (What the heck will that even look like? IKEA on steroids?)

As Michael Thompson of the S&P has been quoted saying: “There are almost two economies out there—the big S&P companies, then everyone else.”

Dr. Mark Dotzour, chief economist of Texas A&M’s Real Estate Center, was recently in town speaking at a lunch sponsored by Southwest Securities. He described what businesses are experiencing right now as exogenous shocks, many brought on by our own Federal government.

Whether it’s nationalized health care, a lack of clarity in the tax laws, or huge swings in the stock markets becoming routine, business has a lot to contend with. And it seems like Congress is going to postpone any major decisions until after the elections, which means 2012 is going to look a lot like 2011.

The good news, according to Dr. Dotzour, is that we are in a spring-loaded economy. Personal savings rates are up to 5 percent, from zero just a few years ago. Household debt service payments as a percentage of disposable income is now at 11.5 percent, the lowest since 1995. And unemployment benefit claims are in decline.

The economy will significantly improve if legislators will ever give the all-clear that they are going to really solve this country’s problems of ridiculous overspending and provide clarity regarding corporate taxes.

If you’re interested in listening to some of the educational sessions from the SIOR conference, click here.

Allen Gump is executive vice president of the industrial division at Colliers International. Contact him at allen.gump@colliers.com.

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