Posted by ray@lcorn on January 28, 2010 at 14:32:43:
In Reply to: Re: Ray, how does lease-up period affect value? posted by Just on January 28, 2010 at 13:43:01:
I meant to mention absorption as well... warehouse space average vacancy in my market is 2 years... a range of 1-3 years is probably typical of most markets except on the coasts, and then only if near ports.
But the thing I have always hated about this sector is that to deal with a decent asset size (e.g. over $2mm), the biggest competitor in leasing or sale is government, as in all those econ development agencies, tax-incentive zones, shell buildings, free land, etc., at the local and state levels. Hard to compete.
Last on my don't like list is the rate of functional obsolescence. Twenty years ago the key metric for warehouse space was cubic feet for capacity. Buildings were configured with high ceilings to utilize space vertically, a few loading docks, and floors strong enough for cranes and forklifts.
Ten years ago the conversion to just-in-time inventories changed configurations to promote "throughput", distribution centers that enable the rapid transfer of goods from one container or transporter to another, large to small or vice versa, with doors all the way down both long walls and drives on both sides large enough for semi-truck access, with storage/staging area in the middle of the building.
Five years ago the model changed again because of changing nature of imports (especially in textiles and furniture) to incorporate limited packaging and assembly operations, along with temporary warehouse space with rapid distribution lanes.
So I've come to the conclusion that the useful life of these properties is about 15 years. That means the intrinsic value is in the dirt, and the building should be considered depreciating personal property. But so far the market doesn't seem to think much of my idea (smile), so I don't own any warehouses.
However I do rent w/h space for our own uses. We pay less psf than it would cost in property taxes, so in the long run it is way cheaper than owning!
My two cents,
ray