Shell Building Solution

Economic Development – 2023 Challenges and Opportunities

In honor of International Economic Development Week we look at the work McGill is doing with communities that have created economic development opportunities through shell buildings. Thank you to McGill client services manager, Gary Jackson, for writing this article.

Market Conditions for Industrial Buildings

While high interest rates and the risk of a recession make 2023 a potentially challenging year for commercial real estate, some experts see manufacturing and industrial real estate as the most resilient market sectors across the United States. The Economic Development Partnership of North Carolina (EDPNC) reports continued strong momentum in the United States and North Carolina for pharmaceuticals, medical devices, medical textiles, gene and cell therapies, auto supplies and green technology, and food technologies.

Tense relations with China and global supply chain disruptions have driven a shift toward reshoring of manufacturing and assembly functions in the United States. Industries offering significant potential for reshoring and investment to expand operations include medical devices, medical supplies, and pharmaceuticals. These are not only growing, in-demand sectors, but they are also likely to benefit from congressional incentives and legislation mandating a higher percentage of manufacturing in the United States for electronics, communications equipment, and robotics / automation equipment. These are also excellent targets for North Carolina, which benefits from an outstanding higher education pipeline. Food and drink production is expected to increasingly focus on stateside markets, driven by the growing preference for locally sourced options.

Supply and Demand

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The industrial sector of the commercial real estate market is experiencing very low vacancies and higher rents according to a report from commercial real estate service firm JLL Inc. (NYSE: JLL). On the demand side, companies are taking on larger inventory positions to avoid future supply shocks, such as those experienced throughout the pandemic.

Now, for the other part of the equation, the supply. Due to the delay of developments from material and labor shortages, supply remains constrained. The construction pipeline is picking up, with many projects in the works, but it is not able to keep up with increasing demand. According to logistics real estate leader Prologis (NYSE: PLD), occupancy in its warehouse space is approximately 4%. Many tenants are being forced to expand or relocate to other markets.

Contrast the current conditions with the desire of tenants to acquire customized high-tech spaces with automation and robotics to help solve a labor shortage problem. Many of these technological advancements are relatively new to the workplace. Older industrial facilities are also less ideal because of low ceilings, limited trailer parking spaces, and inadequate docking doors.

The nation’s facilities are aging rapidly, which represents a tremendous tailwind and opportunity for communities to attract private investment. Current estimates of industrial spaces place 75% of these spaces at 20 years or older and more than 25% at 50 years or older, creating an average age of more than 40 years.

Strategic Product Development by Cleveland County and the City of Shelby

The potential for more advanced manufacturing and the demand for new and improved industrial facilities offers a tremendous opportunity for collaborative and innovative local governments. Existing buildings in decent locations leave the market quickly reports EDPNC. A modern building is an asset that brings clients to look at the property. Even if the client does not select the building visited, it increases the chances of them locating within the same county.

Shell Building Construction

Shell building 4 What is shell building construction and what does it involve? The core concept of base building, also known as shell building construction, is that the construction is simply the basic structure of the building. The build-out and interior construction is then left to the future tenants to carry out before they occupy the building. It is an approach which creates a modern blank slate on which the tenant thereafter transforms it into a workspace which meets the tenant’s exact needs. The successful experiences of Cleveland County and the City of Shelby in developing these industrial sites and shell buildings illustrate the importance of having shell buildings ready on the market with targeted state and local incentives available to help with the up-fit.