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  • Industry Appraisal: High

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    Any valuation of the River Region’s commercial real estate and development industry should be positive; its impacts on the area are as diverse as they are deep, as it employs thousands and provides the facilities necessary for business, education, recreation and more.

    Our homes are our havens, but much of our lives — work, play and other — happens elsewhere, in structures that are developed, constructed and sold or managed by our area’s commercial real estate and building industry. For that reason alone, it’s an important part of our community. Jerry Kyser, Founder and CEO of Jerry Kyser Builder, Inc., stressed just how key it is. “The commercial real estate and building industry in the River Region affects thousands of people in a multitude of ways. Almost every company requires a building to conduct business,” he said.“ And whether the building is existing or built from the ground up, it will involve many people contributing their expertise. These include commercial real estate agents, general contractors, subcontractors and all other trades required to complete the transaction. The impact that the commercial industry has in the River Region is far-reaching.”

    According to Gene Cody, President of Moore Company Realty, Inc., the industry doesn’t just provide perks; it’s essential. And in Montgomery, it’s currently strong, with an outlook for the future that’s even healthier. “Commercial real estate and development is what grows our communities; without it, a city dies,” he said. “Locally, it’s doing great. Our market is doing the best it has since the recession.”

    Nim Frazer, General Manager of Industrial Partners, LLC, which focuses on developing and selling or renting industrial spaces, agreed, pointing to strong economic growth, driven by corporate and consumer confidence as a crucial piece of the calculation. “We’ve also got a robust labor market and rising wages, which will continue to be primary drivers of demand for industrial space,” he said. His company is enjoying higher occupancy in properties and commanding higher prices. “Warehouse and industrial manufacturing rents have finally started to increase with new demand for space,” he said.

    While Cody feels good about the present, he explained how much has changed in the last decade. “In 2011, we had a high office vacancy rate, close to 20 percent. We were still getting out of fog from the crash,” he said. “But there’s lots of activity in our market now -- downtown, in west Montgomery, out east. We are working on a project on the Southern Boulevard. Even the vacancies in the office market have come down tremendously.”

    Today’s stability and the forecast of a bright future is fueled by several factors, as Frazer explained. “First, the fact we have two major interstates running through Montgomery is a huge factor to attract warehouse distribution prospects,” he said. “And HMMA was a game changer. Its suppliers have changed our industrial market for the better.”

    Cody praised city leadership. “Our previous mayor and our current mayor are very proactive in growing our communities. Drive around. There are developments all over,” he said. “Community support is driving this too, as are lower taxes, all-time-low interest rates.”

    EFFECTS OF ADVANCEMENT
    Kyser noted the region’s “slow but steady growth for years” and said he doesn’t see much changing in the outlook for the near future. But there have been changes in the industry; Kyser has witnessed many during his 50-plus years in business. “Most notably is the shift from individual, self-employed craftspeople to large subcontracting companies that provide the workforce for each trade,” he said. “Also, most of the building products are manufactured in bulk by large companies instead of small, locally owned suppliers.”

    Frazer mentioned an increase in size and scale. “Industrial buildings are getting bigger with taller ceilings as the market prospects demand more efficient facilities,” he said. Cody has only been in the industry a little over a decade but has also seen multiple alterations, many of them innovations influenced by technology. “It seems like new technology is coming out every day, and we are doing our best to keep up,” he said. “You can now track where people are shopping with geo fencing. We know so much more about our customer today than we ever have thanks to technology. There’s a lot more use of social media and internet. They are really the most powerful ways to market and study real estate now.”
    Technology has made communication faster and often, easier, yet Cody believes an “old school” approach is still paramount. “A good phone call or lunch with a client is always better than a text or them seeing something on Instagram,” he said. “Those personal relationships remain important.”

    Technology has obviously affected the industry, but the River Region’s recent emphasis on building the area’s IT ecosystem and infrastructure is also significant. “IT is making a huge impact locally as part of the continued growth of our military bases,” Kyser said. “The growth of our local IT contractors [in response to the base growth] provides additional opportunities for the construction and real estate industries as well.”

    TRENDING: E-COMMERCE
    Technology is also presenting some challenges. The rise in e-commerce has heavily (and sometimes, negatively) affected brick-and-mortar retail, and therefore shopping centers, all over the country in recent years. Yet e-commerce’s logistic needs have also created opportunities for those in the warehouse and industrial site business like Frazer. “The worldwide growth in e-commerce continues with positive effects for U.S. retail and logistics markets,” he said. “The volume of goods sold online has transformed logistics networks across the U.S. One segment demanding this is millennials. They appreciate online shopping and same-day delivery.”

    Frazer highlighted the increased market for e-commerce facilities, where sales, services, plus specialized manufacturing and distribution are all under one roof, and again noted that this sector is requiring bigger facilities and bigger sites. “Developers need and want large-scale sites to accommodate the larger warehouses,” he said.

    LABOR LIABILITIES
    Frazer outlined another challenge as well. “Due to labor shortages of certain trades like brick masons, more buildings are tilt-up construction rather than masonry,” he said. “Pre-cast and tilt-up construction are the preferred method to build new warehouses today.”

    While the problem seems to have been adequately addressed for warehouses, the skilled labor shortage is not limited to warehouse construction or our area, according to Kyser. “The shortage of skilled labor is a challenge industry-wide and not just in the River Region,” he said. Yet it’s an issue that he claims can be solved if we work to promote a different perception of construction-related jobs. “It’s a common belief that you must have a college degree to be successful, but there are many skilled jobs in the construction business that don’t require one,” he said. “These jobs allow people to make a very good living. Plumbing, electrical, HVAC, masonry, carpentry, painting or concrete are all very lucrative and respectable professions.”

    A pressing challenge facing the industry is also related to education and has widespread implications, as Cody explained. “Our biggest challenge is our public schools. It affects us, because as it drives population down, there’s less activity in commercial development and real estate. But it affects everyone equally,” he said. “There are a lot of people working hard to fix it. But it will take time, and it is critical for going forward.”

    MBJ: Can you share one notable trend you are currently seeing in the commercial construction industry?

    “Due to increased project opportunities, coupled with the national workforce shortage, we just have to keep working smarter. This includes using lean construction for increased efficiency, utilizing increasingly popular modular construction and a slew of other tools and practices.” - Mac Caddell, Executive Vice President, Caddell Construction Co.

    “Prior to the arrival of the coronavirus crisis, commercial real estate activity in the Montgomery market (including Prattville, Millbrook and Wetumpka) was moving at a steady pace. Sale prices and retail and office rental rates, over the past 12 months, have shown modest increases, with some exceptions. At the present time, most commercial real estate activity is in a ‘holding pattern,’ which will likely remain until the COVID-19 pandemic subsides.” - John Stanley, President, John Stanley & Associates, Inc.

    MBJ: How do your company’s offerings enhance commercial development projects?

    “We create spaces to encourage outdoor social and work activity. By providing seating, shade structures, outdoor fitness areas or a playground, we are delivering creative spaces for the community to utilize for social interaction and creative spaces for work environments to use for increasing work performance and brainstorming.” - Jessica Hoagland, Sales & Marketing, Pet and Playground Products

    MBJ: Can you share one notable trend you are currently seeing in the commercial construction industry?

    “Increased production and job site quality control is now being driven by data using real-time capability to give onsite personnel more power to impact their projects immediately. This use of technology has increased significantly over the past several years and is changing every day. We strive to use technology in a way that creates a team building atmosphere that includes the general contractor, subcontractors, suppliers and design team working for the customer as one unit from early in the concept design stage of a new project to enhance the end product at the best possible price.” - Josie Young, Marketing Director, Russell Construction

    COVID-19: WHAT’S NEXT FOR COMMERCIAL REAL ESTATE & DEVELOPMENT
    For the last two months, our country, Alabama and the River Region have been battling COVID-19. During this same time, the MBJ team has been working to bring you this issue: re-evaluating and updating its content to ensure we bring our area’s business community accurate, interesting, relevant and valuable information in the midst of the unprecedented uncertainty being faced by our national, state and local economies.

    The feature on the River Region’s commercial real estate and commercial development industries that precedes what you’re reading now was researched and written just prior to the virus breaking out in the United States. We hope you’ll find the information it contains interesting and even uplifting as you note some of the positive industry news it contains.

    But knowing that these industries will – like all business – be impacted by COVID-19, we went back to several of our main sources before going to press and asked for their thoughts on the current situation and what they’re expecting the future might hold. Here’s what they had to say:

    Q: HOW IS COVID-19 AFFECTING YOUR BUSINESS AND THE INDUSTRY AS A WHOLE RIGHT NOW?
     
    NIM FRAZER: As the coronavirus continues to hammer our local, regional and global economy, the commercial real estate business faces daunting challenges. One major issue for the CRE professionals is the ripple effect when smaller companies can no longer pay their rent. Landlords will be faced with reduced cashflows and unable to meet their mortgage obligations. If this happens, repercussions will be felt throughout the entire financial structure. Landlords should be willing to work with tenants – on a case-by-case basis – to modify their leases if necessary and help them survive this pandemic. Perhaps by forgiving rent payments in April or May but catching up and amortizing their lease rates over the remaining term of their lease.
     
    Each situation should be looked at on a case-by-case basis. Some industries are being hit harder than others. After all, one must not forget that clients, tenants, landlords, buyers, sellers and lenders are all in this together. They are all a part of the same food chain, and if one link is broken, it’s going to affect the entire chain. We must all work together to get through this short-term crisis. The responses of the landlord and lenders can reduce the effects of the pandemic and accelerate the recovery process.
     
    JERRY KYSER: Our business is being impacted like everyone’s is. Our office staff has been reduced to minimum numbers while the rest are working from home. We had to improvise and find ways to continue working under these abnormal conditions. We normally operate in a traditional office environment, so finding ways to get things accomplished remotely has been challenging, but also, a learning experience.
     
    Industry-wide, we are all dealing with the same challenges of trying to keep your business running but continuing to follow all of the guidelines to keep everyone safe.

    Q: WHAT LONG-TERM IMPACTS ARE YOU ANTICIPATING?
     
    GENE CODY: We have been closely monitoring the crisis at hand. In addition to the obvious watching of the investment sales and capital markets, we are tracking how our clients and other landlords are handling the abundance of tenant requests/demands on rent payments.
     
    Each sector will be affected differently; retail will take the biggest hit. As you are aware, the government has stepped up and offered relief through the Federal Stimulus Package. We are educating our clients on the options they can seek for reprieve.
     
    It is a little premature to predict the effects, but one thing is for certain, this will change the landscape of the commercial real estate market. It will affect the way we do business forever. I am optimistic when we control the curve of the virus, our markets will have substantial pent up demand, and the rush to the market should be incredible.
     
    JERRY KYSER: Experiencing a worldwide pandemic and the impact that it is having on everything in our daily lives has been eye opening. Everyone will learn many lessons from this experience. These lessons will make us better prepared for situations like this if they happen again. I think it will impact the way we do business moving forward in a way that will allow us to address the situation more efficiently. So, yes, this event will have long-term ramifications on all of us.
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