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HARTFORDBUSINESS.COM | JANUARY 8, 2024 5 DEAL WATCH flexibility has just gone away." Christopher Metcalfe, a senior vice president with commercial real estate and brokerage firm CBRE, said Multi-Mode is making a "smart move" by building and owning space, given the rise in demand for third-party logistics and a growing scarcity of available industrial properties. Only 4.4% of the 31.7 million square feet of industrial space north of Hartford — including Windsor Locks and other surrounding towns — was vacant at the end of the third quarter of 2023, according to CBRE. Historically, vacancies in the area averaged about 6% to 8%, or higher, Metcalfe said. "We are in a much tighter market than we have been historically," Metcalfe said. Space that is available is more costly to lease, with industrial rents rising 10% or more in each of the past three years, Metcalfe said. Local incentives Kumpa's newly purchased prop- erties fall within foreign trade and airport development zones around Bradley International Airport, which offer significant relief on stored goods' duties and taxes, as well as property tax abatements of up to 80% over five years for new construction and property improvements. These savings will ultimately mean lower rates for customers, Kumpa said. His planned warehouse will give him additional space and predictable long-term costs, making it easier to forecast future pricing for clients, he added. "Is it a control thing? Yeah, 100%," Kumpa said. "It's the ability to tell your customer what the future looks like." MULTI-MODE LOGISTICS LOCATIONS IN WINDSOR LOCKS • 3 Choice Road – 65,303-sq.-ft. warehouse Multi-Mode purchased in 2013 for $1.8 million. • 495 North St. – 45,846-sq.-ft. warehouse Multi-Mode purchased in 2013 for $1.4 million. • 80 King Spring Road – 52,973-sq.-ft. warehouse Multi-Mode bought in 2019 for $1.4 million. • 296 Ella Grasso Turnpike – Multi-Mode leases 100,000 square feet in this 450,000-square-foot warehouse. • 499 North St./321 Ella T. Grasso Turnpike – Newly acquired space. Industrial real estate availability to remain tight in 2024 By Michael Puffer mpuffer@hartfordbusiness.com I ndustrial real estate experts predict financing challenges for new development and strong demand for warehouse space will continue into 2024. With low vacancy rates, this dynamic is expected to sustain high property values and rents for indus- trial space over the next 12 months. "The feeling is the Connecticut market has room to realize gains in value, and will likely experience more growth compared to other (states) in the Northeast," said Art Ross, executive managing director of commercial real estate company Newmark. Connecticut's largest aerospace and defense companies — Pratt & Whitney, Collins Aero- space, Sikorsky and Electric Boat — remain busy with significant multiyear federal contracts, Ross said. This has led to increased space require- ments from supply chain companies and has brought new players into the market. Connecticut's central location in the Northeast means the Greater Hartford area will continue to draw interest from big-box retailers as well as e-commerce and logistics compa- nies, Ross said. The Greater Hartford indus- trial market cooled somewhat in 2023, due to continued economic uncertainty, with the vacancy rate experiencing a slight uptick in the third quarter, according to a market analysis by CBRE. However, there remains little avail- able space in the market. Only 3.5% of Greater Hartford's 73.2 million square feet of industrial Adam Winstanley Tom Hill Art Ross GREATER HARTFORD INDUSTRIAL MARKET SNAPSHOT* INVENTORY ....................................................................73.2M sq. ft. VACANCY RATE ........................................................................ 3.5% ABSORPTION .................................... (1Q-3Q, 2023) 715,991 sq. ft. UNDER CONSTRUCTION ...............................................2.7M sq. ft. AVG. ASKING RENT (per sq. ft.) .............................................$5.66 * Data is as of third quarter 2023. Source: CBRE space was vacant at the end of the third quarter of 2023, according to CBRE. And, of the 2.7 million square feet of industrial space under construction during the third quarter, 94% was pre-leased, CBRE said. Tough to find good assets Waterbury-based commercial broker Tom Hill III said available indus- trial space is limited, and many properties that are on the market are antiquated and lack the tall ceilings sought by modern businesses. The market has also seen pres- sure from "numerous types" of semi-commercial users and contrac- tors, who have occupied much of the available "flex" space, Hill said. Connecticut's lingering Transfer Act is another big challenge, Hill said, tying up otherwise usable properties in a costly and expensive review process. Under the law, any property that stored or produced more than 220 pounds of hazardous waste in a given month must undertake an extensive review process, including studies to prove the property is not a pollution hazard. A board led by state environmental staff is working on regulations to replace this system with one that simply requires cleanup as spills occur. Opportunities amid challenges Meantime, some municipalities that once welcomed the jobs and taxes that came with logistics development have begun adopting more stringent land-use reviews, making it "extremely difficult" to meet demands, Ross said. Windsor adopted a special permit review process for new warehouse and distribution proposals in 2022. Other towns have followed suit. "The resulting lack of available industrial land for new development will likely push some companies seeking a location in the market to consider sites in neighboring regions, such as central Massachu- setts or Hudson Valley, New York," Ross said. Veteran warehouse developer Adam Winstanley, principal of Massachusetts-based Winstanley Enterprises, cited the roll call of familiar headwinds: high interest rates, lack of borrowing opportu- nities, and ongoing land-use challenges and availability. But there are also positive factors, including a desire by companies to add logistics space to create a more resilient supply chain that can weather pandemics, natural disasters, labor strikes, port disrup- tions and other unforeseen events, Winstanley said. Demand remains strong from the e-commerce sector, he noted. Winstanley's company continued to make a string of big-ticket indus- trial space investments during the second half of 2023, paying $122.3 million for a 1-million-square-foot Windsor warehouse occupied by Amazon, and another $4.6 million for a 133.6-acre Enfield site approved for warehouse development. At a different Enfield property, Winstanley is preparing to break ground in early 2024 on a $135 million, 819,000-square-foot warehouse project, in partnership with Kansas City-based NorthPoint Development. With demand for quicker online- order turnarounds, companies will need to add more buildings in the 40,000- to 150,000-square-foot range, Winstanley said. Winstanley said he also predicts growing demand for "sustainable" buildings that incorporate renewable energy, natural lighting and electric vehicle chargers. Automation will also be a driver, with some companies needing very specific dimensions, including higher ceiling heights, to make their equip- ment lines function.