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Flex Market Trends: Vacancy Rates & 2025 Outlook · Industrial Advisors

• 0:00
  It's expensive to build flex.
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  It's really expensive.
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  And so, you know, to, to make it pencil, you got to find the right site, right.
• 0:08
  Where you really can, you're, you're, you're going to build
• 0:11
  it on, on a smaller site, right.
• 0:13
  That allows for it, um, at the right land basis, because it's so expensive to build.
• 0:17
  So expensive to build, but I thought.
• 0:20
  Uh, in 2022, obviously Covid when we, the market got down to 3.8, I think it was.
• 0:27
  Yeah.
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  Flex was sitting at about four, which was the same number when in 2005, 6, 7, 8,
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  when they were building New Flex again.
• 0:36
  Yeah.
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  I thought we were gonna see it and we didn't.
• 0:38
  Mm-hmm . And now it shot back up, so we're probably not gonna see it.
• 0:56
  Welcome to our Industrial advisors podcast.
• 0:59
  We have a five minute Friday Today we're, today's topic's
• 1:02
  gonna be, uh, about flex and, and.
• 1:04
  Defining what the flex market actually is the F word.
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  Yeah, let's let's it's so, uh, flex properties are
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  typically smaller base stuff.
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  I would say three to say 10, 000 feet, 16 to 18 foot clear.
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  I don't think I've seen a flex property taller than that.
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  And then they're typically only drive in only grade level, no dock high doors.
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  And then I would say beyond that, A lot of them are on roads with high traffic
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  counts and exposures because of the type of tenants that enjoy flex properties.
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  Yeah, so I would say that defines flex.
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  Yeah, um, you know, there's a lot of those projects that were kind of built out in
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  like the 80s, you know, so you think of some of the projects that are down there.
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  You have West Valley Business Park, Springbrook, Cumberland, Davis Commerce.
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  There's a bunch of those Walker.
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  Cedar River.
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  And those were, those are the newer ones.
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  Those are the newer ones.
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  So let's talk the newer ones that, that have been built.
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  And we say newer, I mean those were built kind of early two thousands, right?
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  2004 to like 2008.
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  Yeah.
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  And so you have Walker, business Plaza, Cedar River, and you
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  have Oakdale Commerce Center.
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  And those projects all did well, uh, leasing up.
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  But no one's really built since then.
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  No, the interesting thing to your point is it's been almost 20 years
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  since the newest Flex projects have been constructed, right?
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  And why is that?
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  So if we talk about the, the history of Flex over the last 20 years,
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  it got down to about 4%, which is why Oaksdale Commerce Center built
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  those two, W1, W2, I think it was.
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  And then Walker.
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  Cedar River built and then the downturn hit 2009 ish,
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  and that got hit the hardest.
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  So we went from a 4 percent vacancy to a 22 percent vacancy and flex.
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  And the reason for that, as I recall, is you've got a lot of smaller credit
• 3:04
  tenants that Can't take those hits.
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  So they went out of business and, and we saw a big vacancy in flex, right?
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  Especially B.
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  Yeah.
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  B grade.
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  Yeah.
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  Yeah.
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  The A stuff actually performed relatively well.
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  Yeah.
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  But certainly in the past, when you would go through a downturn, those would be kind
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  of the first groups that would go because, because they don't have some of the
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  credit that they don't have the bandwidth.
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  Yeah.
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  Yeah.
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  Uh, but overall I would say the flex market has performed well.
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  Over, over the years, you know, there just hasn't been a lot
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  of new, new constructions.
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  You think of some of the owners that, that own flex in our market, they've done well,
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  you know, harsh has done an amazing job.
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  Schnitzer is now what they go by, but they have done a fantastic job.
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  They just bought a couple new, uh, flex projects.
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  TA has owned some, some really good projects.
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  BKM has done well on the West Valley stuff.
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  Um, you know, Jeff Davis has done great on the acquisitions.
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  You know, he bought Cumberland years ago and that's performed really, really well.
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  And then he's always owned that one on 228.
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  Yeah.
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  Davis Commerce Center.
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  Yeah.
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  Yeah.
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  So the owners of Flex like it, um, but it's not for everybody because
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  it's really management intensive.
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  It is, it's lower credit, it's management intensive.
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  And then I would say typically your downtime's a little bit more,
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  especially if you're class B Flex.
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  Yeah, that can be tough.
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  And then your TIs are a lot more, right?
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  Yeah, they can be, but sometimes, you know, you're just plugging, you're getting
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  the group that comes in and they need space next month and they want to do a one
• 4:30
  or two year deal and they just Jump into the space and they don't need anything.
• 4:34
  That's right.
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  Um, so the question is, you know, it's, it's that flex market sits at
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  just under 8 percent vacant right now.
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  Um, which is lower than the market, right?
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  Lower than the market.
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  It's at eight three.
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  Yeah.
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  Yeah.
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  So So yeah, when to build, right?
• 4:52
  Yeah, I mean, it's expensive to build flex.
• 4:55
  It's really expensive, right?
• 4:56
  And so, you know, to, to make it pencil, you got to find the right site, right?
• 5:02
  Where you really can, you're, you're, you're going to build
• 5:04
  it on, on a smaller site, right?
• 5:06
  That allows for it, um, at the right land basis because it's so expensive to build.
• 5:11
  So expensive to build, but I, I thought.
• 5:13
  Uh, in 2022, obviously COVID, when we, the market got down to 3.
• 5:19
  8, I think it was.
• 5:21
  Flex was sitting at about four, which was the same number when in 2005, six, seven,
• 5:27
  eight, when they were building new Flex again, I thought we were going to see it
• 5:31
  and we didn't, and now it shot back up.
• 5:33
  So we're probably not going to see it.
• 5:35
  Yeah.
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  Right.
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  But it didn't happen then.
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  Most developers, to your point, were so focused on big bucks.
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  Right.
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  And a lot of the developers that were doing Flex years ago are not now.
• 5:47
  Yeah, so your buying pool is a bit more limited.
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  I do think that it would be, if you have a long term approach on it,
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  and you're buying it in the valley somewhere, it would do well long
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  term because The yield's better.
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  You don't have competition.
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  In the sense of like the last projects that were built, we're
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  building, you know, call it 2008.
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  Yeah.
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  And so you're, you're the newest product in town and you, you likely will be,
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  you know, there's not going to be a new bunch of competition in the flex space.
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  Right.
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  So, so if you really had like a.
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  20 year approach on it, and you just wanted to build a project that's going
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  to be successful for, you know, the long haul, I think it would do well.
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  It's just, it's so expensive to build.
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  So you have to get over that initial hurdle.
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  Yeah, I do too.
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  And to your point, there's only the newest ones being 20 years old.
• 6:32
  There's almost never a vacancy on them.
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  We've had Cedar River.
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  I mean, I can't remember the last real vacancy we've had.
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  It's been a while.
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  Yeah.
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  Right.
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  So we've had ones we've advertised as people are moving out and
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  we immediately lease it up.
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  So the demand on A is there.
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  there.
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  Yeah.
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  Even though the vacancy is 7.
• 6:48
  9 percent below market, that's almost exclusively in B and C grade properties.
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  Yeah.
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  I mean, the right play for Flex is a kind of family owned, local, hands on investor.
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  For sure.
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  Long term hold.
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  That's right.
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  That's the play.
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  So Flex is doing well and, uh, I think it'll probably have a
• 7:08
  decent year this year in 2025.
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  Agreed.
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  Happy Friday.