For our recent presentation on the industrial segment, we pulled as much data as possible from around the parish but found that most of the larger facilities were not included in the data because the deals were done through sources that did not report the data.
From a seller’s and a landlord’s perspective, we are seeing some of the best sales prices and lease rates in the history of the industrial segment. It seems very relative to consider the price of oil at the end of March 2014 was $108.05 per barrel and the price of natural gas was $3.74 per thousand cubic feet, compared to 2012 when oil was $92.07 and natural gas was $2.32. We have to believe that oil and gas prices are driving the demand for industrial properties and that this industry creates its own real estate market here. I think that the biggest challenge we have lately is the lack of supply in the marketplace. As vacancies become extinct, new buildings are popping up in different areas. The best news for investors is that capitalization rates are staying strong. In fact we are seeing CAP rates anywhere from 9 percent to 11 percent, which is a great return on investment.
We were able to break down the data into three different size buildings based upon square footage. small (3,000 – 5,999), medium (6,000 – 11,999) and large (12,000 and above). We also separated the data into new buildings and existing buildings and included all buildings more than 10 years old (all prices discussed in this column are per square foot). The first aspect we looked at were lease rates in the new small buildings, which we found are averaging $9-$10 compared to the existing building rates of $4.50-$5.50. Please keep in mind that all of the lease rates we discuss are NNN lease rates, which usually mean that the rates involve net income to the owner. The tenant pays insurance, taxes and maintenance over and above the base rent we are disclosing.
New medium size buildings are averaging $11.50-$12.50 compared to $7.50-$8.50 for existing units. Finally, the new large buildings are averaging $10-$12 for new and $8.50-$9.50 for the existing buildings. The medium to large size buildings are carrying higher rental rates because of the amenities that are now being required. Some of the new trends are 10-ton overhead cranes, larger stabilized (limestone, crushed concrete) yards, and heated and cooled warehouses. All of which drive the cost of the buildings up, therefore creating higher rental rates to obtain the same returns on investment.
We analyzed sold rates in the same categories. New small buildings are averaging $93-$97 compared to existing buildings selling for $40-$60. New medium size buildings are averaging $80-$100 compared to existing buildings at $40-$60. New large buildings are actually leading the way with $90-$110 compared to $50-$70 for existing properties.
Once again, it is important to point out that the new large buildings are going to typically include more stabilized yard and overhead cranes. Just recently we saw a brand new 40,000-square-foot building in SMEDA park with three 10-ton overhead cranes all averaging about $80,000 each. We suspect that the deepwater drilling is creating a lot of this need because most of the equipment being used is much bigger and heavier. As a side note, Lafayette Parish saw $73.34 million in new building permits in 2013. I would be willing to gamble that a large part of that was in new industrial development.
I think another important aspect of the industrial sector is the cost of land. We are starting to see some new industrial parks in Acadiana. To the west, Scott has a new development, Scott Commercial Park, which will contain about 27 lots averaging about .40 acres and $4.30 per square foot. Off of Verot School Road in the city of Lafayette, there is an industrial/office development, Pride’s Crossing, with lots ranging from .90 acres to 4.6 acres averaging $4 per SF. Shenandoah Park is between Eola and Shenandoah off of Jared Drive in Broussard, and it will have six to eight lots ranging in size from .40 acres to 3.5 acres at an average price of $3.50 per SF. Garber Industrial Park in Broussard has also done well and is working on Phase 3 and Phase 4 with lot sizes ranging from 1 to 4 acres with an average sales price of $2.75 per SF. The other park that has recently sold most of Phase 1 is Schaefer Industrial Park in Saint Martin Parish next door to the new Forum Energy super campus. These lots range from .90 acres to 4.6 acres and are averaging $2.50-$3.00 per SF.
According to LEDA the following are either among the new companies coming to the area or those adding onto their current facilities: Halliburton Intergrated Completion Facility in New Iberia is completing a 219,000 SF climate controlled maintenance facility and a 30,000 SF administration building/command center on approximately 103 acres on Admiral Doyle. Halliburton’s total project cost is approximately $45 million. Another addition to the area is Freeport- McMoran in LEDA Industrial Park.
Freeport- McMoran is building a 120,000 SF warehouse/storage facility on approximately 26.5 acres with a total project cost of $18 million. Bell Helicopter Assembly Facility on Highway 90 in Lafayette Parish will contain a 82,300 SF hangar site on approximately 14.5 acres with a total project cost of $26.3 million. And Hoover Container Solutions will be completing its 23,000 SF facility on 9 acres in Scott.
Newpark Resources is expanding its current location in Carencro with an additional 50,000 SF for about $41 million. Frank’s International is expanding on Verot School Road and Beau Pre Road by adding 175,000 SF of warehouse/office and an additional 55 acres. Stella Maris is doubling in size from 22,000 SF to 45,000 SF off of W. Pont des Mouton Road for about $2.5 million.
Forum Energy is building a super campus in St. Martin Parish in Schaeffer Industrial Park. The 150,000 SF facility is on approximately 25 acres with a total project cost of $17 million.
All indicators point toward a prosperous 2014-2015 and, as you can see from 2013, Acadiana has a lot to be excited about in terms of job creation, future growth and development in the industrial sector.