Legal Briefs

Industrial Rising

Millennials drive the enhancement of amenities for industrial workspaces.

It's no secret that the demand for creative work environments is rising. Today's office tenants seek creative workspaces that foster collaboration and innovation and are willing to pay a premium.

According to a national office outlook report by JLL, markets with a large supply of highly amenitized creative office space are demonstrating explosive tenant demand and growth.

As office tenants continue to clamor for creative spaces, many industry experts are looking ahead and asking: What's next on the creative space horizon? The answer is industrial.

With creative office product proving its worth nationwide, the natural and inevitable next step is a wave of new, state-of-the-art industrial facilities, which incorporate creative office elements to meet the changing preferences of today's workforce.

Transformative Working

In the past decade, there has been a huge transformation in the way people work. The rise of the millennial workforce is prompting many employers to reconsider their work environments to attract and retain top talent.

The U.S. Bureau of Labor and Statistics reports that millennials are the largest age group in the workforce and will comprise approximately 75 percent of the workforce by 2030.

The millennial mindset differs from that of their predecessors in several ways. First, today's millennials place a greater value on a company's culture and demand creative environments to support them in their personal and professional growth. Second, they are more entrepreneurial in spirit and constantly seek new opportunities for growth. The average employment tenure for a millennial is approximately three years, according to the BLS.

These millennial tastes are driving changes across all industries, and industrial commercial real estate is the next frontier.

Like office workers, industrial workers will begin to look for creative, collaborative space to aid in talent recruitment and retention. Specifically, industrial employees, especially in the technology, life sciences, and manufacturing industries, recognize the importance of providing quality workspaces for today's employees.

As an example of their tremendous growth, life sciences users account for nearly 33 percent of flex research and development leasing in Denver, followed by high-tech users representing approximately 14.4 percent of leasing, according to CBRE.

Companies in these sectors seek workplaces that are conducive to innovation. To deliver brand value and retain the best employees, these tenants will gravitate toward spaces with on-site amenities, creative office space, and highly efficient industrial feature.

Insatiable Appetite

In fourth quarter 2016, national vacancy rates in all industrial product dropped to 4.9 percent and positive net absorption totaled 47 msf, indicating 41 percent less demand compared to third quarter 2016 for industrial space in markets across the U.S., according to CBRE. However, this is the 27th consecutive quarter of positive net absorption.

Much of the existing product, on the other hand, was not designed with the end user in mind and often lacks the proper infrastructure to appeal to today's industrial tenants. The limited supply of high-quality industrial product, coupled with its pent-up demand, creates an opportunity to fill a void with industrial facilities that are both high-quality and creative.

Based on shifting tenant preferences and national fundamentals, it's time for the industrial sector to embrace creative space. The rationale is straightforward. Tenants understand that it's better to pay a little extra per sf in rent for a high-quality facility than to lose their best employees.

By creating thoughtfully designed workspaces that encourage social connections and provide opportunities for enriching live/work/play experiences, industrial owners and developers will enable tenants to attract and retain their best employees, allowing owners to keep their tenants and drive stable cash flow on their investments.

By integrating lifestyle amenities and creative office  elements into industrial buildings, industrial owners and developers can leverage tenant demand for high-quality work environments, resulting in strong cash flow and risk-adjusted returns for years to come.

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Adam Robinson

Adam Robinson is founder and principal of RAF Pacifica Group based in Encinitas, Calif. Contact him at  adam@rafpacificagroup.com

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