Latest / Industrial Advisors / Industrial Real Estate Outlook 2027: Power, Development & Demand | Brendan Egan

Transcript

Industrial Real Estate Outlook 2027: Power, Development & Demand | Brendan Egan · Industrial Advisors

• 0:00
  I've heard the, the phrase of disruption is now the new baseline.
• 0:05
  I mean, I, I think that's true, but that worries me.
• 0:08
  Yeah.
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  Right.
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  You know?
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  That no- that shouldn't be that way.
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  Yeah.
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  It should be consistency.
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  It should be able to make decisions
• 0:29
  Welcome to our IMC podcast.
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  This is Industrial Advisors.
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  We're here live in Columbus at IMC, and we have Brendan Egan from Dermody,
• 0:37
  Vice President of National Accounts for- Correct … for those guys.
• 0:41
  Uh, it's been kind of an interesting last couple of years.
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  I think you, you were on our podcast a couple years ago.
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  Correct.
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  The industrial market's certainly shifted a bit since then.
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  Right, right.
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  But you have a great national exposure to these tenants.
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  What, w- how are you just feeling overall about the industrial market in general?
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  I mean, gosh, the, uh… And thank you very much for having me on.
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  I really appreciate it.
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  Yeah.
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  Um, you guys are great.
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  And, uh, so yes, I think we are definitely positive about
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  the, the market, the economy.
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  Uh, we're under construction on Roughly 5 million feet nationwide right now.
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  Yeah.
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  And that's in addition to the almost 40 million square feet that we own.
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  We are just about to open an office for the first time in Dallas.
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  So that will be, I believe, our ninth office, actual regional office.
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  Sure.
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  So in that sense, yes, we are very positive.
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  I mean, if you look at everything, supply, demand, that which has been so
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  out of balance for the last few years is finally coming back into, to balance.
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  Average, uh, vacancy across the country per, I think, the c- most recent Colliers
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  report is, uh, right around 7, 7.2.
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  Yeah.
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  Which is, is not bad.
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  No, it's not bad.
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  Um- Yeah … so, uh, I think in that way we're very positive.
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  Of course, there, there are headwinds as we've talked about, and I've
• 1:57
  talked to several people here.
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  Price of diesel, interest rates, just the disruption going around, the uncertainty.
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  Mm-hmm.
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  Without that clarity, it's hard for people to make, uh, or hard
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  for companies to make decisions.
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  Yeah.
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  So that's, that's the headwinds I see.
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  But, uh, I would say generally, you know, we're pretty positive.
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  Yeah.
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  Are there any markets that you guys are really focused in on and targeting to,
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  you know, grow the portfolio in right now?
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  Absolutely.
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  I mean, as I just mentioned, we're about to open an office in Dallas.
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  Uh, although we have developed in Dallas, and our chief operating
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  officer has lived in Dallas now for several years, this will be our first
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  time opening an office in Dallas.
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  Yeah.
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  And so that's obviously a, a market we are very, you know, positive about.
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  We made a huge investment about a year and a half ago in Savannah.
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  Yeah.
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  And bought 1,000 acres down there.
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  Our first two buildings there are gonna be coming online, I
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  believe, in the next 30 days or so.
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  Okay.
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  How big are they?
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  Um- Are they big, big bombers?
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  Two big bombers.
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  Yeah, yeah.
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  Yeah.
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  The, the one is 550, and the other is 740.
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  Okay.
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  And speculative, so we're putting our money where our mouth is on those.
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  And we're about to break ground on another building there, which
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  will be just over a million.
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  Okay.
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  And, uh, so that is one.
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  Savannah, we love.
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  Dallas, of course.
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  But we're, in all of our markets, we have new buildings underway.
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  And, uh, so we're, you know, we're feeling good about those markets.
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  And, and Dermody, for the most part, invests in tier one markets.
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  Right.
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  So… And we do have kind of that tier two plus, but we are tier
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  one markets, and the vast majority of our buildings are brand new.
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  Yeah.
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  So.
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  Yeah.
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  It's good to be focused in on those markets and stay, stay, you know, kind of
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  true to that belief, 'cause those markets generally rebound the fastest anyway.
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  Exactly.
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  Yeah.
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  Exactly.
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  Yeah.
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  So Brennan, you mentioned some big spec projects in those markets.
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  Are you guys… And then 5 million square feet under construction.
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  Correct.
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  Are you guys- Is that solely spec?
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  Are you doing some build-to-suit projects?
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  And then, yeah, maybe touch on that first.
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  Right now, we don't have any build to suits underway that
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  I can, that pop to mind.
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  We have done a bunch of them.
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  And, uh, you know, everybody from, like, Smurfit Westrock, we did a,
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  a large building in Wisconsin for.
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  I think it was last year we completed a, uh, a big
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  build-to-suit for Pepsi in Chicago.
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  Around the country, we have done a lot of build-to-suits.
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  But from our very beginnings in 1960, we have been speculative developers.
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  And Michael Dermody, the owner of the company, that, that's always
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  been a belief of his, is we, we are speculative developers.
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  Yeah.
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  And then you mentioned you guys invest in tier one markets.
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  But are you hearing things from tenants that point you guys to
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  certain tier one markets right now?
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  Or, you know, what makes those decisions?
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  Du- that, that's just where the leases are happening.
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  The, uh, Southern California, we had bought a building right on the 55 freeway,
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  tore those down, built two beautiful smaller buildings, 'cause that's where
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  the buildings are that, that size.
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  And by smaller, you know, a couple of hundred thousand each.
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  And Anduril, you know, they, which is on everybody's thinking these
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  days, one of the great c- new companies, leased both buildings.
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  Oh, okay.
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  Um, yeah.
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  Yeah.
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  So very happy about that.
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  You know, the, the, all the markets, uh, we've done great leasing recently
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  in Phoenix, in Nevada, which is kind of a, or Vegas, I should say, specifically
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  tier, I would say a tier two plus market.
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  We have, uh, it is just on fire again.
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  And so we have a 660 that, uh, is, gosh, I bet there are, I think we have eight
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  different companies chasing it right now.
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  Wow.
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  Uh, which is just awesome to see.
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  And in, in Reno, where our, our, uh, corporate offices are, we finished,
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  uh, just earlier this year, uh, a large building up there, about 600.
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  And we already have it 100% leased, two great companies.
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  Wow, great.
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  He has a rocket.
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  Yeah, I mean, it's, and again, it wa- it was quiet, quieter
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  for the last couple of years.
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  And then as that whole supply and demand came back in, I mean, we're all seeing it.
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  You guys see it, I'm sure.
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  Yeah.
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  There are deals being, uh, uh, coming to fruition out there.
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  People are still taking a while to execute, to make those decisions.
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  But once they make them, they're going.
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  Yeah.
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  They, they wanna get it done.
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  Yeah, definitely seen an increase in activity.
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  Even in the last, like, 90 days it's been like, it seems like that- Absolutely
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  … the market shifted quite a bit.
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  This- And is that true for your- Yes … your market?
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  Yeah, absolutely.
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  I mean, we, you know, in the Puget Sound are still a bit
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  soft from a vacancy standpoint.
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  We're 11%.
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  You mentioned the national average is in the sevens.
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  Right.
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  So we're 11, but that's gonna come down.
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  We have about two and a half million feet of big box deals, I think, that are
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  gonna happen maybe in the fourth quarter.
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  So- Wow.
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  So that'll be, that'll be a really good thing for the market.
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  One of the things- Well, I'll s- I'll, I- Yeah
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  just, sorry to interrupt there, Bob.
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  No, you're good.
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  Somebody told me right a- at breakfast, Houston, th- that's another market
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  we're hearing about all the time.
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  Told me there are 11 million square foot deals looking at Houston right now.
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  Wow.
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  Yeah.
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  I mean- We, we just actually did.
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  That's just amazing.
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  That is amazing.
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  Yeah, yeah.
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  K- Kyle led the efforts on a, a, basically a 900,000 footer
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  that, that we did there recently.
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  Oh, nice.
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  Yeah.
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  Just recently.
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  Good job.
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  Yeah, thank you.
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  Yeah, so.
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  So he's not, he's not just a pretty face doing the interview . No,
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  he's, yeah, he's more than that.
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  Yeah.
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  Little bit more.
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  Yeah.
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  So, but we are starting, and you, you I'm sure am seeing this as well, power
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  becomes such an important issue for, and requirement for a lot of these
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  tenants that are out there right now.
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  Oh, right, right.
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  And so how are you guys looking at that in, in your portfolio as
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  you look to build new buildings?
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  Right.
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  Yeah, how are you addressing that?
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  You know, it's, it truly is.
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  I mean, not just because we're competing or the, the companies
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  that we all deal with are competing against data centers for that power.
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  But, you know, I was talking to one of our regional partners and, and
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  asking kind of that idea from, say, 10 years ago to today, the base power
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  in a big box building has doubled.
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  Yeah.
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  So, you know, so much of that is because the buildings are so much bigger.
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  I mean, I think the average now for a new big box is 42 foot clear.
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  Yeah.
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  And it's because they're using the cube space.
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  Right.
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  So if they're using the cube space, the material handling, the
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  equipment, the automation, the ASRS, all of that is power hungry.
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  And so to be able to do that, you have to have the buildings ready to
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  go with big power right off the bat.
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  But also to be able to go bigger, you know, to have those relationships
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  with the power companies, and we have been fortunate to have good long-term
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  relationship with the different power companies so that when you need it,
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  when the client needs it, you can make that call and get into the, the
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  line, so to speak, and to know what the timing's like on the switch gear
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  and, and all that kind of stuff.
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  Yeah.
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  So without a doubt, one of the key issues, and having that, the ability to not only
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  have the power right off the bat, but the expansion of it could make a deal for
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  you, could get a deal done that maybe your competitor may not have that available.
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  It's a really good point to not only have it, but then the
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  ability to add more down the road.
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  Absolutely.
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  We're working on a big deal in our market that that is going to be
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  the driver for getting it For sure.
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  Yeah.
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  So, yeah.
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  Have you seen, I mean, with your clients, again, I've heard that doubling.
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  Are you hearing any kind of stats like that?
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  I mean, I- Yeah … I love hearing about that.
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  Yeah, absolutely.
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  I mean, I think power, and depending on what space we're in, right?
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  I mean, it's not as much on the 3PL side.
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  Right, right.
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  But as you get into, like, the manufacturing, as you get into some of the
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  AI related type uses too- Right … that becomes, like, the main driver of it.
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  So, and we're starting to see more and more of those uses.
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  So I, it, it's not going anywhere, that's for sure.
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  I was reading an interesting study.
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  They just came out with the, uh, I think it's, like, the 30th year of
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  the, uh, 3PL study through CSCMP.
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  Yeah.
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  They're talking about how the shippers, the, the manufacturing companies are
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  actually really depending more and more on the 3PLs now to have that power- Yeah
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  available.
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  For servicing those accounts.
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  Ex- exactly.
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  Yeah, yeah.
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  'Cause they want them to spend on the infrastructure, on the,
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  uh, on the MHE and all that.
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  So we are seeing a shift, but it's all, it's all power related and, and hopefully
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  the country keeps building more power.
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  Yeah.
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  Yeah, we need it.
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  Yeah.
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  Yeah.
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  So interesting topic, Brendan, to a lot of our listeners is the
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  landlord and tenant relationship.
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  Yes.
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  We often ask tenants what they look for in a long-term landlord partner
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  that they kind of gravitate towards, but I want to get your perspective
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  on it from the landlord side.
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  What are some of the things that you guys, you know, look for in a great
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  tenant, and what, what attributes do those tenants have that make you wanna go
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  chase those deals harder than maybe not, you know, a tenant without that profile?
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  Well, I, I think, you know, we just heard a terrific, uh, speech in there on trust.
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  Yeah.
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  So I think that's a huge thing and, and how do you build that trust?
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  By following with your commitments to, to doing what you say you're gonna do.
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  And so many times I think that trust is built after the lease.
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  You know, i- it's, it's, uh, where something wasn't thought
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  of and somebody can make a call and say, "Gosh, we missed this.
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  We need this." And to be able to say, "We got it.
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  We'll take care of it." And that works both ways.
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  Yeah.
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  So I think that is a huge thing for a, a customer to be able to say, "Okay,
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  we wanna now go and, and we did a deal with you in Phoenix," or w- you
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  know, wherever, Phoenix or Seattle.
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  "We now need to be in Atlanta."
• 11:20
  Well, okay, great.
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  Here's our person there.
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  We can use the same lease.
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  We have this great working relationship.
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  We wanna be that customer's development company anywhere they want to go.
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  And it doesn't have to be a tier one.
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  Those are the markets we're in, but if we have that, that trust on both sides, they
• 11:39
  know that we will take care of them the way that they need to be taken care of.
• 11:45
  Yeah.
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  And that person who, uh, the real estate person who re- you know, reports to the
• 11:50
  C-suite- They need to be able to walk into those meetings and say, "Hey, we're
• 11:55
  working with Dermody again. Everything was 100% of the first time. We feel good about
• 11:59
  this." So that's how I would look at it.
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  Yeah, it's a great answer.
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  Well, and, and, and you've done such a nice job, and I've seen it, you
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  know, of building these relationships with the folks that run real estate
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  for these c- large, larger companies.
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  Right.
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  And it's… and, and that, to your point, really, really does matter.
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  It's, uh, you know, I'll tell you, if, if, uh, Michael Dermody, the owner, was
• 12:18
  here, his favorite thing to give somebody is not the business card, it's the
• 12:23
  mission statement, and that's what it is.
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  It talks about building long-term relationships.
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  That's literally part of our mission statement.
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  That's what we all… And if you walk into our, the lobby of our,
• 12:33
  our corporate offices, it's a huge plaque on the wall in the lobby.
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  Yeah.
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  So that's the DNA of the company.
• 12:40
  That's cool.
• 12:41
  Well, I guess to, to wrap it up, how you feeling about the, the market just
• 12:44
  heading into 2027 as we wrap up here in, in '26 and head into, into the new year?
• 12:50
  I mean, again, I think we're feeling positive.
• 12:51
  We, we, uh, price of diesel, that concerns me, and we see it, all of our
• 12:57
  customers, everybody in these, in these rooms here, price of diesel affects us.
• 13:01
  It affects the food supply, manufacturing, uh, carriers, everything on the road.
• 13:07
  That needs to come back down.
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  And it, it affects the 3PLs, of course, in a huge way 'cause that's built
• 13:12
  in the price of, uh, transportation.
• 13:14
  It's built into their contracts, right?
• 13:15
  So that needs to come down.
• 13:17
  I've heard the, the phrase of disruption is now the new baseline.
• 13:23
  I mean, I, I think that's true, but that worries me.
• 13:26
  Yeah.
• 13:26
  Right.
• 13:27
  You know?
• 13:27
  That no- that shouldn't be that way.
• 13:29
  Yeah.
• 13:29
  It should be consistency.
• 13:30
  It should be able to make decisions.
• 13:32
  I think more than anything, people just want to have a feel that they can trust
• 13:38
  what the next year is gonna look like, and there are times where it feels that way,
• 13:43
  and there's times where it really doesn't.
• 13:45
  So, but again, overall, we're, we're a very positive-feeling
• 13:49
  company about the future.
• 13:51
  Again, we're building a lot of, uh, buildings.
• 13:53
  Yeah.
• 13:54
  And our investors trust us to make great decisions, and, and we are good at that.
• 13:59
  Yeah.
• 14:00
  Well, it's, uh, it's been a great year obviously for you guys, and so we wish
• 14:03
  you, uh, the best of luck- Thank you.
• 14:04
  Thanks … heading into next year.
• 14:05
  Thank you.
• 14:06
  And, uh, thank you for, for joining us.
• 14:08
  This is always such a great conference.
• 14:10
  Uh- Oh, I love this.
• 14:10
  This is my, my favorite and most important one for me.
• 14:13
  Yeah.
• 14:13
  And I go to a lot of conferences.
• 14:14
  Yeah, I know.
• 14:15
  I, I agree.
• 14:15
  It's, it's one of the best, and, um, best part about it is
• 14:18
  just interacting with everybody.
• 14:20
  Yeah.
• 14:20
  You know?
• 14:20
  So.
• 14:20
  Absolutely.
• 14:21
  Yeah, so thank, thank you for your insights.
• 14:22
  Hey, thank you.
• 14:22
  Yeah.
• 14:23
  Appreciate it.
• 14:23
  Bill, thank you.
• 14:23
  Kyle.
• 14:24
  Yeah.
• 14:24
  You bet.
• 14:24
  Thank you.