New Haven Industrial Real Estate--No Supply, No Demand

Perhaps we have discovered a new dynamic in the real estate market panoply--no supply and no demand.  Or, they are more likely related in a pretty simple way.  Weak demand over the past number of years for industrial property in Connecticut has led to a lack of new construction in this sector.  Many companies have left for warmer (weather-wise and tax-wise) climates, leaving a new supply of older buildings in their wake.  Fewer companies than in other places are expanding into more industrial space, so there isn't much demand to take up the supply that exists.  Therefore, rates are low, even though people looking can't find what they want and need.

That sounds awful, but it represents an opportunity.  Buildings can be converted, or constructed, and profitably, since there are buyers and tenants out there that cannot find what they want.  Sellers and landlords can continue to accept low rates of return, or they can repurpose those buildings to different types of uses (residential or flex spaces).

There is little enough around so that what is here should move, and, arguably, prices should be rising.  In order to make that happen, new players may have to enter the arena, and up everyone's game.  Let's hope for all our sakes that this occurs.  In the meantime, we would advise potential sellers to be undeterred by low rental rates, since people are looking for what's not there, and anything new could be just the ticket for a thus far unsatisfied user.

The Multifamily Category is Still Hot

When I look at the LoopNet list of the most-often viewed properties in Connecticut each week, I am struck by how many are multifamily properties  (and also about how few are ever industrial, where there is a big supply).  Week after week, thousands of people view residential investment rental properties.  Why the appeal, and why is it not waning?

I think that the appeal is like all of real estate--a tangible investment in a time of uncertain returns in many investment categories.  It also is the type of investment where those who are handy, or have some free time, can improve properties or cut expenses, and raise returns, something that cannot be done with stocks and bonds.

But won't the supply exceed the demand?  People don't think so, and that's coming from two ends of the age spectrum--millennials and seniors.  Millennials, with little desire for home chores or fixed commitments, and with a lot of educational debt, are renting in bigger numbers and for longer.  And downsizing older adults are no longer finding a stigma in rentals, so they are often selling big homes and renting in urban areas especially.  Since Connecticut has a very high average age, we have a lot of those people.  Also, professionals who move here to take jobs are renting much more often.  They are renting more everywhere, for the reasons above, but our state has a very high percentage of people who want to avoid what they see as an illiquid investment--an owned house--and high estate taxes, so they consider buying somewhere else, or keeping the house they had elsewhere, and renting here.

Will this continue?  It seems to be holding up for the present, even in New Haven, which has loads of new product coming on line.  It may well be that, at some point, those who are slumlords, or who have not reinvested in their properties, will be forced to lower rents or make improvements, in order to compete with the newer buildings, but even that hasn't quite happened yet.  So the interest in the segment continues. 

Supply and Demand

Nationally, the residential real estate market is out of whack in the supply and demand, with many fewer listings than buyers, and that's the main thing holding down sales in some markets.  That is usually not the issue in commercial real estate, since there are so many different types of properties, and they aren't often fungible.  There is a problem, however, in that we see many buyers and tenants who cannot find the kind of properties that they are seeking; that is a different variant of supply and demand.


We seem to see more of that issue now.  Why would that be?  First of all, it's much easier for buyers to see what's on the market by searching on-line themselves.  So, when they get to us, they have seen what's there, and they are looking for what's not there.  Secondly, it seems as though there are more Section 1031 tax-free exchanges, where buyers may be more constrained in what they need to buy, and in more of a hurry.  Thirdly, the lingering effects of a bad market have caused many sellers not to list.


What are the lessons here for buyers and tenants, sellers and owners?  If you are a buyer/tenant, it's more important than ever to make sure that you have a real estate agent who knows the local market, since you may be looking for that proverbial needle in a haystack.  We are doing more and more searches for what isn't available, and you can find those things, but you have to know where to look.  For sellers/lessors, the lesson is simpler:  List now.

Supply vs. Demand

We've just finished reviewing all our commercial listings, and something really interesting has become clear.  The calls we get from buyers and tenants seem to be largely requests for small space and flex industrial space in increments of 5,000 to 10,000 square feet.  The listings we consider best, and which we feature as prime listing properties, are mostly office buildings and large industrial buildings.

This disconnect is a key factor in the relative health of the commercial real estate market all over the country. Buyers want investment properties that are often difficult to find--apartment buildings; fully tenanted office buildings; and shopping centers.  Sellers want to dispose of property or lease property that is meant for users, and is often available in amounts that are too small or too large for the needs expressed by tenants and buyers.  And therein lies the rub.

So how do we find owners who are ready to market investment and divisible property, when they are reading that the market isn't active?  And how do we attract buyers for the good listings that we currently have?  That's our challenge, and one that we are working on daily.