The Lay of the Land

Developers that build office or retail space for lease also increasingly find themselves losing out to owner-users such as banks and pharmacies that will pay a premium for land parcels they covet. “Many will pay whatever it takes to get where they want to be,” Young says. For-lease developers can find it difficult to recoup steep land or building costs through higher rents; rents have been rising steadily in recent years, and experts think that the market currently won’t bear higher rates.

The real estate market cycle also plays a role in the pricing and availability of land. “Industrial developers are looking to buy land again, and they weren’t out there this aggressively six months ago,” Rausch says. “Developers see the market heating up, and with more users in the market, they know they’ll be able to put land into production faster after purchasing it.”

While some communities have been rezoning industrial land for residential use to accommodate population growth, other cities are showing renewed interest in retaining jobs and a commercial base. In Plymouth, for example, CSM redeveloped a former industrial site at the intersection of Highway 55 and Vicksburg Lane for a project called The Shops at Plymouth Creek. Lowe’s home-improvement store is the project’s anchor, and a pharmacy, bank, and handful of retailers will be part of the 200,000-square-foot development. The site also includes an apartment complex for seniors.

Businesses in outer-ring suburbs may benefit from cheaper land, abundant parking, easy access to freeways, and proximity to executives’ homes. But there are downsides, too. “Some of these communities are becoming so expensive to live in that workers can’t afford to live there,” Young says. He adds that when he talks to city officials around the metro, they report that the cost of housing is pushing business operations farther out. “[They’re saying] ‘Our employees can’t afford to live in town anymore,’” Young says. “They are moving further out to where their wages can support the cost of housing.”

Little Help From Rent

While there was a time when developers used higher rents to offset rising land and construction costs, that’s more difficult at today’s average rent levels, particularly with retail businesses. “Retail rents climbed a lot in the early part of the decade and are just about tapped out,” Young says. “We’re finding ourselves paying more money for land, with rents staying essentially flat.” The CB Richard Ellis market study shows that aside from a slight drop in the average rate in 2002, the retail market has registered increases in rental rates each year since 1999.