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Demand for retail pad sites is at an all-time high, driven primarily by fast-food and quick-service restaurants looking to add more drive-through locations and tenants looking to relocate from small-shop inline space in larger centers.

Pad sites and outparcels anchored by grocery operators and national big-box chains that are deemed essential—think Kroger, Home Depot, Publix, Target, and Walmart—continue to receive the most interest. But limited retail development has forced a shortage of new pad sites and created a frenzy for those that are available, even ones that tenants bypassed or overlooked in the past.

“Pad sites that were oddly shaped or too small or located in markets that weren’t on retailers’ radars—even those sites are in high demand now, so I guess you could call them ‘late bloomers’,” says Joe Schlosser, senior vice president of asset management for Phillips Edison & Co. (PECO), a Cincinnati-based REIT with a portfolio of nearly 290 shopping centers comprising roughly 30.4 million sq. ft. of space.

Hunger for drive-through sites

Pre-COVID, demand for pad site was already high due to growth from existing and new coffee shops, including Dutch Bros, Black Rifle Coffee, and Black Rock Coffee, along with expanding fast-food and QSR brands such as Chick-fil-A and Raising Canes.ADVERTISING

Throughout the pandemic, restaurants with drive-throughs have performed better because they were able to continue to serve customers even when their dining rooms were closed, according to Walter Wahlfeldt, executive vice president with JLL Retail.

“Demand has been increasing throughout COVID as many retailers now believe that this drive-through requirement will become as new standard, especially with the growth of online ordering and pickup,” Wahlfeldt says.

Chipotle and McAlister’s Deli, for example, are now adding sites with pick-up windows so customers don’t have to get out of their cars to obtain their to-go orders. Meanwhile, Panera is increasingly seeking sites that allows for drive-throughs.

Restaurants and other retailers desiring buildings with drive-throughs need larger pad sites (assuming they don’t reduce the size of their dining rooms or do away with them completely). Additionally, a single drive-through isn’t enough for many fast-food and QSR operators.

In fact, many popular national brands are looking to “stack” drive-throughs, according to Ryan Ash, project director with Vestar, a Phoenix-based retail owner, and landlord with a portfolio of 30 million sq. ft. throughout the western United States.

In Texas, for example, newer What-A-Burgers have as many as three drive-through lanes. Likewise, Chick-Fil-A has begun to add a second drive-through lane to locations with enough space.

Repurposing and redeveloping dark buildings

Though merchant developers continue to be big players in pad site development and leasing, savvy shopping center investors are finding ways to unlock the value in their existing projects by repurposing dark single-tenant buildings or demolishing obsolete single-tenant buildings, and developing new ones in their place.

Schlosser estimates that 85 percent of today’s pad site opportunities are redevelopment plays. He points to Alameda Crossing, a 141,702-sq.ft. center in Avondale, Ariz. that is anchored by Sprouts and JOANN Fabric and Craft Stores and is adjacent to a freestanding Kohl’s.

PECO purchased the vacant building located on an outparcel in front of Spouts that had previously been occupied by a bankrupt beauty supplies retailer. The REIT repurposed the 8,000-sq.ft. property into a multi-tenant building occupied by Pacific Dental and a regional taco restaurant and is actively leasing the remaining space.

Some landlords are also initiating conversations with existing anchor tenants to gain control of unused acreage or see if they’re amenable to transforming excess parking areas into pad sites.

“One of the biggest opportunities for developing pad sites will be to unlock real estate controlled by strong corporate occupiers who have excess acreage, either raw land or unused parking, to develop pads,” says Alex Sharrin, senior managing director with JLL Capital Markets. “The more developers that figure out ways to make inroads with these corporate occupiers, the more we’ll see this happen.”

Rise of multi-tenant pad sites

In the not-so-distant past, developers and owners would ink a deal with the first investment-grade tenant that expressed interest in a pad site. But rising construction costs, coupled with shifting retailer needs and a supply-demand imbalance, are changing the way developers and owners view pad sites.

Property owners really have to think about maximizing NOI for pad site projects, according to Sharrin. While higher rental rates are one way to achieve that, they’re not the only way or even the smartest way. Instead, owners are designing and developing multi-tenant buildings on pad sites that previously would have housed only one retailer.

“One of the biggest trends that we’ve seen on pad sites has been the rise in multi-tenant pad use versus single-tenant,” Sharrin says, adding that combining several tenants in a single pad site allows owners to double or triple their NOI.

At PECO’s Alameda Crossing, for example, the REIT constructed a new 4,800-sq.ft. building on a single pad site and leased it to a regional donut retailer, a local salon, and a chiropractor.

Historically, multi-tenant pads or parcels were rare, primarily because many retail tenants required more space and there wasn’t room for multiple users. But the increased availability and accuracy of consumer data from proptech companies has provided retailers with a much better understanding of their space needs.

Across the retail spectrum, retailers are adjusting their footprints, with many rolling out prototype stores that are much smaller than their traditional ones. And now that single tenants are requiring less space, it makes sense for both the tenants and the developers/owners to seek out multi-tenant pad sites.

Consider Walgreens, Chipotle, and P.F. Chang’s—all three of these retailers are testing pared-down concepts, with Walgreens focusing on its most profitable part of the business—prescriptions—and both Chipotle and P.F. Chang’s doing away with dining rooms and emphasizing delivery and takeout, which cuts space requirements in half, if not more.

Today, many retail tenants actually prefer multi-tenant pad sites. These types of properties fit nicely in the space between larger shadow-anchored strip centers and in-line small shop space in grocery-anchored centers.

“Multi-tenant pad sites bring in a greater variety of customers than a single-use,” Sharrin notes. “That’s a win-win for everyone.”

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The pandemic upset even the most stable real estate owners. Properties with long histories of low vacancy saw tenants move out or reduce space in response to the pandemic, and office and retail owners were the most impacted. While it could take years for the leasing market to recover, there are ways that property owners can tackle vacancy problems.

“Viewing tenancy as an investment is one way,” Phil Raglin, CEO of Alpha Lease Management, tells GlobeSt.com. “By partnering with firms like ours, owners and property managers can work with tenured professionals who will either occupy each vacant space or sublease and manage it, as explained earlier.”

Securing a master lease with a leasing management company like Alpha is another way that Raglin recommends owners minimize vacancies in ta property. Setting up a master lease allows an owner to become a passive investor in the property, leaving the responsibility of the space to Alpha. “Instead of quickly scrambling to fill vacant space, which could lead to having a less-than-creditworthy tenant, owners can become passive investors by setting up a master lease with a firm like ours, which then assumes the task of making that vacant space perform,” says Raglin.

Maste leases are customizable with negotiable lease terms and rates that, according to Raglin, are based on the ideal outcome for a property. “We determine this outcome through a fintech analysis using our 16,000 data-point TALGO algorithm, which calculates the risk of leasing a property,” he says.

Master leases can be a long-term strategy for owners as well. Some lease terms can stretch up to 30 years with incremental increases in lease rate. “In most cases, existing leases become subordinate to the master lease, which allows property owners to collect steady increases while we await periodic increases from other tenants,” explains Raglin. “This structure allows active investors to become passive while providing all investors with speed, transparency, and ease.”

In addition to signing a master lease, owners can also monetize previously unleaseable spaces, like common areas, parking, and rooftops. Alpha actually upgrades these areas to enhance lease-ability. “We offer this service as a CPR lease structured as a net lease, which is much more cost-effective, less risky, and deepens property value while increasing NOI,” says Raglin. “Rather than assuming the expense and risks of activating these spaces themselves, owners transfer the risk and management to us, and we provide capital investment for these upgrades.”

These leases also help to offset vacancy in a building an increase NOI, which is crucial for many owners today facing increased vacancy. As Raglin adds, “This lease structure deepens property value while diminishing owner/operators’ risk and offsetting vacancy costs in a building’s traditional leased space.”

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Nearly every industry has shifted in some way during the Covid-19 pandemic — and commercial real estate (CRE) was no exception. While many industries have seen things swing back to normal as the pandemic has progressed, CRE will likely be changed forever.

While some people have speculated that the traditional office will never come back, most experts predict that offices aren’t going anywhere.

1. Hybrid offices are here to stay

If you ask most people how they enjoyed working remotely during the pandemic, they’ll likely tell you there were some pros and some cons. It allowed employees to skip their commutes, take more working vacations and spend more time with their families.

At the same time, many employees felt isolated or distracted while at home. Hybrid office spaces will become the new normal, allowing people to experience the best of both worlds.

A recent WeWork study found that roughly half of the employees prefer to work in the office between 1 and 4 days a week. As employers make long-term plans for their office space, they’ll likely keep employee preferences in mind.

Because employers have hybrid office spaces on their minds, CRE entrepreneurs should be aware of how a hybrid workspace looks different. As a CRE investor, you want to attract the best tenants to make the most out of your investment.

In a hybrid workspace, the whole team does not need to be present at once. Many employers may take advantage of smaller office spaces to save money on rent. This could be advantageous for newer CRE entrepreneurs hoping to break into the market with smaller investments. Going forward, you will likely find more companies interested in a smaller space, allowing you a greater chance at quickly turning a profit on your investment.

2. No more open floor plans

Toward the end of the 20th century, open floor office spaces became the overwhelmingly popular office trend. By the early 2000s, it became difficult to find any young companies working without an open floor plan.

Covid-19 highlighted the issues with the open office, however. The lack of barriers between coworkers created a perfect opportunity for sickness to spread. As companies return to the office, employers will prefer office spaces that minimize the spread of any type of illness.

Not only does the open floor plan allow the spread of viruses, but it also creates a more distracting environment. Prior to the pandemic, the open floor plan was beginning to lose popularity because it’s difficult to focus on your work when your coworker is on a phone call right next to you. During the pandemic, many employees adjusted to being able to control their workspace while working remotely. As workers return to the office, they’ll want spaces that have some amount of privacy.

To maximize cash flow from a CRE investment, it’s important to create an office space where workers have a sense of control over their environment. This allows them to feel focused and safe from illness. In a post-pandemic world, open floor plans are unlikely to give workers that sense of control.

3. Offer flexible leasing options

CRE entrepreneurs should be willing to get creative with their investments in a constantly changing commercial real-estate world. While the need for office space will always be there, many people may be looking for flexible options.

Many businesses may want flexible leasing options because they want to be able to change locations and be more flexible with remote work during certain times of the year. Many remote workers may be looking for co-working spaces.

Look for opportunities to meet the changing needs for office space. Allowing flexible leasing can create an opportunity for you to change courses with your own investment as the times change. The best entrepreneurs are often the most flexible entrepreneurs.

4. Create a place for intentional collaboration (and connection)

When the business world moved primarily online at the start of the pandemic, many companies realized they didn’t have to work in an office to run the business successfully. Because the office was proved to be not entirely necessary, the office space of the future must be a place where people want to be.

A 2012 HBR study followed the office behavior of several different teams. They found the highest performing teams often casually socialized with each other in the break areas. Team players also often circulated the office, chatting with various team members.

The study showed that performance can improve when employees have a good office space to socialize in. While open offices have proven distracting, there must be gathering areas for group collaboration in every office. There should also be places where team members socialize in their free time. It’s these types of spaces that make employees enjoy being in an office.

A successful CRE entrepreneur must know how to create office spaces that make employees want to be there in person. If you create an environment that inspires creativity, collaboration,.

and innovation, you’ll quickly attract high-quality tenants and create an excellent ROI.

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In a 2021 survey from Commercial Cafe, 45% of Gen Z respondents reported feeling satisfied with their current work-life balance, with 56% bringing increased levels of stress from work home with them.

As the Gen Z worker population grows, these issues become more and more pressing for commercial real estate (CRE) firms. In order to attract tenants and meet the needs of this growing generation, CRE firms must start creating plans to optimize their properties now. 

Fortunately, the measures CRE leaders are taking to augment their spaces for hybrid work often fall in line with the preferences of the Gen Z workforce. Here are three ways CRE firms can align their properties with the needs of this younger generation. 

1. Create the flexible workspaces that Gen Z wants.

Gen Z values flexibility. In fact, it is a key consideration for 52% of them when evaluating job options, with 36% of Gen Z respondents specifically stating they want the freedom to work from anywhere. This preference for flexibility also echoes the broader workforce’s desire for hybrid work.  

What does this mean for CRE leaders? You need to strike the balance between designing collaborative spaces and also spaces for privacy and deep work. As you do so, it’s important not to conflate visibility with flexibility. This means building architecture that fosters privacy. 

Building flexible workspaces means configuring spaces for more human moments, like polishing up a presentation with a coworker or commiserating after a sales call. Even adding something like an alcove can help create the private space professionals look for when they need a moment to collect themselves. Workers, and especially those in Gen Z, want to feel connected with one another. Flexible workspaces can go a long way in facilitating this objective. 

2. Optimize your office with technology designed for the hybrid workplace.

You already know that proptech enables you to automate how your office spaces function and optimize each workspace for its tenants while minimizing the burden on your administrative staff. But have you considered just how much these economies improve the daily experience of your tenants?

As Gen Z’s presence in your spaces grows, you’ll likely see increased returns on your investment in the tools that allow you to manage climate controls, access controls, occupancy rates and other daily functions.

In the years ahead, proptech can help you coordinate the flexible work schedules Gen Z desires, streamline cloud technologies that can increase visibility and opportunities across your own company, and contribute to any energy conservation initiatives your tenants may prioritize, which is a value Gen Z champions. 

Additional implementation of technology into your properties could include outfitting flexible meeting spaces with video conferencing technologies and high-speed internet. Ultimately, you should aim to provide Gen Z with technology upgrades they may not have access to at home — benefits and amenities that will continue to motivate this group to commute into the office.

3. Design workspaces with occupant wellness in mind.

While Gen Z seems to be the most connected generation with regard to their digital presence, the pandemic has disconnected them a great deal. Forty-three percent of Gen-Z workers admit they get lonely working from home. 

This social disconnection can negatively impact networking opportunities, which are especially important as young professionals seek to leverage their skills in an increasingly competitive job market. 

Understandably, this social isolation also connects with Gen Z’s collective worry about productivity while working remotely. This worry and isolation has contributed to a concerning rise in stress and anxiety for this young generation, as they grapple with work-life balance during a pandemic. 

To help alleviate some of these anxieties and promote mental wellness, CRE firms can construct spaces with features proven to improve morale and productivity, like natural light and eliminating open floor plans. 

The Gen-Z workplace should look and feel like an optimized hybrid office.

The preferences of Gen Z workers coincide with many hybrid workforce initiatives, except for the fact that Gen Z workers want a dedicated office space more than any other generation. This is good news for CRE leaders. The desire for a dedicated workspace hasn’t ended during the pandemic and, if Gen Z is any indication, the market for convenient and connected workspaces should remain steady. 

In order to begin the process of workplace optimization, examine your existing contracts and the features of your spaces. By examining what younger generations are looking for, real estate leaders can better anticipate the trends and preferences of future tenants.

Communicating with your tenants and reconfiguring spaces as necessary, can also build trust and loyalty with your tenants, which can then lead to longer partnerships. 

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Investors that have been frustrated by intense competition and a thin supply of for-sale corporate sale-leaseback properties are welcoming a growing pipeline of deals.

Companies ranging from FedEx to Taco Bell typically use sale-leasebacks as a financing mechanism. They pull equity out of their real estate and use that capital to reinvest in their business or finance strategic initiatives such as mergers & acquisitions, expansion, or new equipment. However, many companies put such activity on pause due to uncertainty related to the pandemic, which resulted in a drop in sale-leaseback transactions.

According to net lease brokerage firm B+E, the overall size of the single tenant net lease property market is roughly between $7 and $7.5 trillion. In an average year, about $50 billion to $70 billion in those properties trade and sale-leasebacks typically represent about $10 billion of that activity. “We saw sale-leaseback sales that were a bit thinner in 2020, which was definitely a result of COVID. The music stopped, and everyone recalibrated,” says Camille Renshaw, CEO, and co-founder of B+E, a net lease investment brokerage firm. “Now, in 2021, the music is back on, and everybody is pouring on the gas.”

W.P. Carey is one major firm that has accelerated its buying activity in this space. The company has already acquired some $1.2 billion in net lease assets this year and expects to reach a record high investment volume for the year, with many of those deals typically sourced from corporate sale-leasebacks. And the firm has plenty of dry powder to spend. Over the past year, the firm has completed both debt and equity raises that have generated substantial interest from investors.

That record volume is being driven by a couple of key factors. The cost of capital, both on the debt and equity side, is near all-time lows. “We’re able to do more and more deals at lower yields that are still accretive to our overall portfolio. So, having that low cost of capital really gives us a lot of flexibility in the types of deals we can do, which is translating into this record-high transaction volume,” says Tyler Swann, executive director, investments at W.P. Carey Inc.

A second key driver is a demand on the corporate side to do sale-leasebacks. “In the market overall, cap rates are at historical lows right now. I think that has driven more companies into the sale-leaseback market that maybe hadn’t considered it as a financing option in the past,” says Swann.

Restocking the deal pipeline

B+E is seeing its pipeline of potential deals for 2022 grow as companies once again need capital to fund various business strategies. Recent inbound interest at the brokerage firm from corporations exploring sale-leasebacks has jumped 20 percent. As it can take months for companies to lay the groundwork for those deals, Renshaw expects those transactions to hit the market in the second or third quarter of 2022.

That growing inventory is good news for a sector that has been battling a shortage of quality deals. A year ago, B+E was tracking about 3,800 net lease properties on the market on any given day, and today that number is closer to 2,800. “So, there is a massive delta on how much on-market property there is, and when you look at specific tenants, you see opportunities for very aggressive pricing,” she says. As a result, cap rates have continued to compress over the past year and have hit all-time lows for the most desirable tenants and categories.

There is a lot of capital and pent-up demand from buyers, agrees Aaron Jodka, head of Capital Markets Research at Colliers International. Sale-leasebacks with institutional-grade credit tenants and longer-term leases of 10, 15 years, or longer are seeing cap rates in the 5s—if not lower—in many cases. Best in class properties—top locations with premier tenants—are generating cap rates in the 4s or even sub-4 in some rare cases, notes Jodka.

The return of positive economic growth is giving sellers the confidence to move off the sidelines. GDP growth surged to 6.7 percent in the second quarter. Although growth slowed in the third quarter, economists are expecting that the economy will regain momentum in the fourth quarter. Forecasts for 2022 remain bullish, with GDP growth expected to remain elevated, with various economists predicting growth ranging between 3.5 and 4.5 percent. Another factor feeding the pipeline of sale-leasebacks is record-high levels of M&A activity. According to S&P Global Market Intelligence, global M&A activity topped $1.17 trillion in the third quarter, marking the fourth consecutive quarter M&A deals have surpassed the $1 trillion mark.

“A lot of what we do at W.P. Carey is sale-leasebacks that are driven by a private equity firm buying a company that owns real estate,” says Swann. Oftentimes, the PE firm will look at a sale-leaseback on the real estate as a way to finance the acquisition. “In their view, it’s more efficient for them to own the operations of the business and unlock the capital that’s tied up in the real estate and go deploy that more efficiently somewhere else,” he says.

Some businesses also are looking to capitalize on a sale-leaseback in 2021 due to potential tax law changes in 2022, adds Jodka. For example, family-owned businesses that are facing potential tax changes related to the elimination or cap on the step-up basis when passing property on to heirs are more motivated to do a sale-leaseback now for wealth management planning.

Pent-up demand for assets

Many buyers are seeing competition for deals that is at or near an all-time high, with more capital flowing into the space across the spectrum from institutions and new investment funds to high net worth individuals. “Capital is really coming in from all fronts in this environment where returns on assets are generally low across the board, and people see relative value in net lease deals,” says Swann.  

Although inventory is noticeably tight in some categories, there continues to be good deal flow coming from sectors that have outperformed during the past 18 months, notably industrial, data centers, and life sciences. The robust development pipeline of both spec and build-to-suit projects is creating fresh inventory for sale-leaseback buyers. For example, W.P. Carey recently acquired a 1.5 million-square-foot class-A warehouse and distribution facility in Indiana net leased to an investment-grade leader in the consumer packaged food market for $114 million.

In addition, there are buying opportunities at all price points and for different types of institutional and individual buyers. Other segments that have been on a growth streak are convenience stores and car washes, notes Renshaw. For example, B+E sold a Cloud10 Car Wash in Pennsylvania for $5 million and a cap rate of 6 percent. In addition, there has been an uptick in interest from the QSR sector, especially those that had drive-thrus and thrived during COVID.

“We’re also seeing the market expand with value-add transactions, particularly on the office side,” says Jodka. Office deals with lease risk are now trading, whereas that wasn’t happening a year ago, he notes. Office properties, and even some retail buildings, are being purchased by opportunistic investors who might be looking to re-tenant, convert the building to new use, or demolish the existing building once the corporate users vacate and build something new. Sale-leasebacks in tertiary markets are still a tougher sell, particularly on the office side. “For 2022, it will be curious to see whether certain industries drive sale-leasebacks, whether it is the financial industry, tech or another industry, and whether that creates a push from one way or another,” adds Jodka.

Article originally posted HERE.

Not that long ago, few U.S. developers were thinking about incorporating sustainable features into their warehouse projects. Today, however, new warehouses are often either being built to meet the sustainable standards of recognized green rating systems like LEED (Leadership in Energy and Environmental Design) or are “sustainability-ready,” with the structural integrity to support the addition of sustainable features, like solar panels on rooftops.

For example, in April, global logistics facilities provider Prologis launched the first LEED v4 for Core and Shell Volume Program for U.S. logistics properties. The company began designing all new construction to meet sustainability certification standards in 2008. But in 2020, it expanded its commitment to sustainability. “We set a goal that 100 percent of new developments and redevelopments will achieve sustainable building certification each year,” says a Prologis spokesperson.

With LEED v4 for Core and Shell, Prologis will implement measurable strategies for achieving high performance in sustainable site development, water savings, energy efficiency, materials selection and indoor environmental quality for its projects in the U.S., Latin America, Canada and Italy.

According to an official statement from Prologis chief legal officer and ESG head Edward S. Nekritz, the program “gives us a first-mover advantage that enables us to deepen strategic relationships with customers and partners and attract and retain the industry’s most talented professional—factors that together ultimately impact our bottom line.”

The move toward sustainable warehouse construction is being driven by both government agencies and institutional investors, says Dallas-based John Thomas, managing partner at Transwestern Development Co. But the U.S. is still far behind both Europe and Asia in bringing its industrial properties to meet sustainability standards. A 2020 survey by GRESB, an investor-led global ESG benchmarking organization, showed that 25 percent of logistics facilities in Asia are green building-certified compared to just 7 percent in the United States.

The reasons largely have to do with government incentives. Developers in the European Union are now faced with sustainability requirements as outlined by the Energy Efficiency Directive and Energy Performance of Buildings Directive, which sets the goal of halving carbon emissions across Europe by 2030 and achieving carbon neutrality by 2050.

“The rules are often different in certain European, Asian and South American countries,” says Thomas. In addition, certain countries, such as Germany, offer subsidies to developers for a few years to make sustainable projects more economically feasible. When the subsidies are no longer in place, many developers discontinue sustainability upgrades, Thomas notes.

But while national governments are driving the change toward sustainable development in many regions of the world, in the U.S., sustainability requirements are regional. California, for example, passed legislation that requires all new or significantly renovated commercial buildings completed in 2030 or later to be carbon neutral.

However, Thomas notes that few U.S. state or local governments have yet to implement sustainability requirements for warehouse projects. Those that do, often focus on requesting access to mass transit or the incorporation of solar energy. Thomas suggests that if more U.S. government agencies mandated sustainability building requirements for warehouses, it would level the competitive playing field for developers who are trying to incorporate sustainable features.

For example, he notes that big publicly-traded users of industrial space are also pushing for sustainability, but are oftentimes unwilling to pay extra for it. In addition, Thomas says that many of the warehouse occupants Transwestern works with are regional and local users that are less concerned with incorporating solar energy because it requires continued maintenance, there are security concerns and the potential for product damage.

Common features that can make logistics facilities more environmentally friendly include natural lighting, LED lighting with IoT data, upgraded insulation and ventilation, EV charging stations and a protocol for recycling packaging materials, among other things, notes Matt Walaszek, director of research at real estate services firm CBRE who specializes in industrial and logistics properties.

At Prologis warehouses, sustainable features may also include photovoltaic solar cells and battery storage, light-sensing controls to reduce electricity consumption; water conservation measures, such as motion-activated faucets, low-flow toilets, waterless urinals and captured rainwater for landscape irrigation; low-emitting sealants, adhesives and carpet systems; use of compounds and chemicals with non-petroleum bases to conserve non-renewable resources and improved air quality for a healthier work environment.

Sustainable warehouse construction generally increases the shell cost by approximately 10 percent, according to Thomas. As a result, he notes that it isn’t currently economically feasible to build sustainable warehouses on a speculative basis. But in the meantime, Thomas says that all modern warehouses are structurally ready to add sustainable features, such as solar on rooftops.

“Occupiers are indeed paying higher rents for modern facilities, especially given the high levels of demand,” says Walaszek. But he notes that while new environmentally sustainable construction is more costly, greater energy efficiency and other environmentally sustainable features are becoming a key theme in new projects because they are becoming a selling point for landlords who are trying to lure tenants who have set their own ESG goals.

According to Walaszek, “industrial real estate has become an institutional asset class within commercial real estate and modernizing these properties with cutting edge technology and sustainable features has become integral.”