Written by David Castellon
After a strong — even exceptional — 2016 in portions of Fresno County’s real estate market, this year may be just as good or better, a group of real estate experts told a crowd of business people Wednesday afternoon at the DoubleTree by Hilton Hotel Fresno Convention Center.
At the same time, the real estate market here is changing. There’s a new premium on industrial space, and the e-commerce revolution is presenting economic development opportunities geared to new tastes and expectations among consumers.
The former already has begun, with Fresno successfully persuading Ulta Beauty to build its planned 670,000-square-foot distribution center here for the company’s online orders.
And the city is looking to land an even bigger e-commerce fish, Amazon.com, which is looking at Fresno as a potential site for its new, 850,000-sqare-foot fulfillment center.
And work is underway at Manchester Center to rehab its retail side with new stores, signage and a food court featuring restaurants more oriented to the Valley’s “foodie” culture.
“The overall outlook for Fresno and the county continues to remain strong,” said Nick Audino, one of the masters of ceremonies for the Fresno County Economic Development Corporation’s 2017 Real Estate Forecast.
Audino, a senior vice president for Newmark Grubb Pearson Commercial, noted that with the low cost of living and high availability of workers, “It’s a great place to do business.”
In his comments on office space in Fresno, Brett Todd, senior vice president for the Fresno office of Colliers International, noted that after a drop in demand during the recent recession, office space absorption has risen every year since 2013, and was particularly high last year.
“Tenants actively pursued and absorbed the largest amount of space that we’ve seen in the last 10 years, and owner-users — plus investors — purchased buildings at equally impressive rates.”
Confidence in the economy nationally and locally are helping push businesses to start or expand, which is part of the reason office vacancy rates in the Fresno area dropped to 11.5 percent in the first quarter of his year compared to 12.8 percent at the start of last year, Todd said.
“Optimism among tenants and buyers was a big factor in last year’s noteworthy market and continues to be a strong point currently.”
Todd told the packed crowd that he expects leasing and sales of office space this year to be comparable to last year.
But there is a hitch.
“One problem is a lack of inventory of such buildings,” he said.
Large industrial developments are being built, and the City of Fresno has done improvements to its infrastructure, which is part of the reason Amazon is considering the city as the site for its distribution center and thousands of jobs, said Ethan Smith, another senior vice president for Newmark Grubb.
“This is all good news,” he said, but added that developers need to be ready to attract and accommodate new types of businesses.
“What is driving the industrial market, locally and globally?” Smith asked. “It’s e-commerce.”
Surprisingly, he told the crowd, e-commerce represents just 8.1 percent of all U.S. retail sales, but the opportunities for growth are enormous.
“This is really big for the industrial market. This is a completely different type of market from what we have seen in the past,” Smith said.
What Amazon and other online vendors have in common is a need to ship goods to customers, but that is an evolving aspect of the industry, as price no longer is the “end all, be all” of what drives online purchases as much as speed of delivery, and the industry is evolving to accommodate demand, Smith said.
“This is all impacting industrial real estate,” he said, as the buildings for distribution centers tend to be different from the industrial buildings more commonly available in this market.
“Where the rubber meets the road for brokers like us, these buildings are different — really big buildings, lots of parking for employees,” with lots of employees and new types of automation working inside, Smith explained.
“They are a very different animal,” he said.
“We need more land. I know that sounds kind of crazy,” Smith added, but more industrial parcels located in or near cities are needed to attract more Amazon- and Ulta-like businesses to Fresno County because these companies want to be in cities and alongside major traffic corridors, and if they can’t find such spaces here, they’ll go elsewhere in a heartbeat.
And it’s not just big e-commerce businesses that should be courted, said Rachel Orlando, sales associate for Retail California, a commercial real estate and brokerage firm that is working to sign up new tenants to Fresno’s Manchester Center.
Store closures have increased in recent years, and the trend is going strong into 2017.
“The reason is there’s a big Amazon in the room,” Orlando said.
Many e-commerce businesses that prided themselves on not being brick-and-mortar are now opening their own of brick-and-mortar stores and showrooms because customers want to be able to try on or try out their products before buying, whether it’s sweaters, mattresses or furniture.
In addition, millennials have overtaken baby boomers as the dominant consumer force in the U.S., and businesses are listening to them, trying to figure out their wants and tastes, she said.
As such, part of Manchester Center’s current renovations include a food area geared toward foodies — people who prefer fresher, locally sourced, higher-quality foods and beverages, even in a fast food format.
Work is underway to line up tenant restaurants and vendors, but the plan is for none to be national chains, and the area could include a seller of fresh fruits and vegetables, Orlando said in an interview after her presentation.