Hartford Business Journal

6 HARTFORDBUSINESS.COM | JANUARY 17, 2022 Deal Watch Space Race Red hot industrial realty market turns warehouses big and small into hot commodities By Michael Puffer mpuffer@hartfordbusiness.com I n a normal year, Torrington- based Borghesi Building and Engineering Co. averages about four calls from clients wanting to erect an industrial building. Over the past year, that's increased to about one order a month, company Chairman Allan Borghesi said in a recent interview. "Recently, industrial has been a big segment of our business and there are a lot of businesses doing very well," Borghesi said. "They have extra money. They are growing and they need space." The pandemic has been a mixed bag for commercial real estate — the multifamily market remains active while the office and retail markets have slumped — but the industrial sector has continued to pick up steam, keeping brokers and builders busy and drawing in investors. Experts say they see no signs of an industrial slowdown on the horizon. "Business is phenomenal," Borghesi said. "[2022] will be at least 50% growth. Normally we do 20 building projects a year. We are up to 35 projects a year." Borghesi Building, which got its start in 1946, isn't just fielding more calls. Customers are more eager and ready to sign a contract immediately, Borghesi said. Supply chain problems have pushed up costs and delayed completion dates, adding to the urgency. For example, a typical four-month wait for ordered steel has stretched to 10 months, Borghesi said. "I just got a call from a person who wants us to build an industrial building. They need to be in by the end of [2022]," Borghesi said. "I told them you need to order in the next two weeks if you want to start building in November." Lack of inventory Tom Hill III, a Waterbury-based industrial broker, said properties that aren't saddled with pollution problems are being snapped up quickly by users and investors. "There are too many people chasing a lack of inventory," Hill said. "All of the industrial buildings are going, but the ones selling quicker have high ceilings because they can stack higher and be used for warehousing. Any building, if it is not environmentally impacted, there are two, three, four buyers for it all the time." Hill said he's sold to a doggie day care, plumbers, electricians and investors. "Industrial has opened up to all businesses now and not just machine shops," Hill said. There is broad agreement on the factors propelling the state's robust industrial market. Cheap borrowing costs is a big one, as is pressure from the e-commerce boom. Growing online retail sales have driven up demand for enormous industrial warehouse space as companies look to get closer to end customers who increasingly demand goods in a day or two. Amazon has been a busy space occupier in Greater Hartford. Since the start of 2021, it's leased at least 531,000 square feet of space in the region, including in large industrial properties in Manchester and South Windsor. Overall, it leases millions of square feet of warehouse space statewide. E-commerce pet products retailer Chewy Inc. recently proposed building a massive 750,000-square- foot fulfillment center on 93 acres of undeveloped land at 2000 Day Hill Road in Windsor, as part of a $175 million investment aimed at better serving its Northeast customer base. But smaller properties are selling briskly as well. A California-based real estate firm paid $5 million in November for a 51-year-old, 70,000-square-foot industrial building at 60 Wooster Court in Bristol. That was twice the appraisal set by the city assessor. A Roosevelt, New York, buyer recently paid $1.6 million for a 79,000-square-foot industrial building at 1000 Silas Deane Highway in Wethersfield. That was about $400,000 more than the town's appraisal. Also in November, a New Jersey real estate development company paid $1.88 million for a 27,600-square-foot warehouse in Torrington, more than $600,000 over that city's appraisal. Mark Duclos, president of Hartford-based Sentry Commercial, said almost every industrial building his firm brings to market is getting multiple competitive offers. Developers and investors are moving to secure available building sites. "There is no question there is a ton of cash out there and money is cheap on a relative basis," Duclos said. "Those sales are all getting bid up. There are a ton of companies chasing limited product, which is driving those prices up." Duclos can't pinpoint the date the market revved up, but called it a "COVID-era event." The numbers The Greater Hartford industrial real estate market saw vacancies decrease to 6.9% in the third quarter of 2021, with average leasing rate offers rising to $5.36 per square foot, according to a report by commercial brokerage firm CBRE. Momentum in the market "has noticeably picked up in the third quarter and leasing activity has resumed, highlighting the continued strength of the market," CBRE reported. Mark Duclos Newmark commercial realty broker Art Ross brokered the $2.85 million sale of a 55,000-square-foot industrial building at 390 Woodland Ave., in Bloomfield. HBJ PHOTO | JIM SHANNON

• Cover