🔒Amazon’s $105M Windsor fulfilment center sale underscores demand for industrial properties

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Greater Hartford's industrial real estate market has dominated most of the commercial realty sales activity through the first half of 2016, helped largely by the sale of Amazon's new distribution center in Windsor.

Amazon's 1.5 million-square-foot facility on 200 Old Iron Ore Road, which came online just last year, quietly sold for $105.5 million in April, according to a recent market report by commercial real estate firm Avison Young. German property investor Deka Immobilien bought the facility from San Francisco real estate investment trust Prologis.

The sale, realty experts say, underscores the rising demand for industrial space in Greater Hartford, both from investors and tenants, particularly e-commerce companies looking for distribution hubs to store and ship goods into the highly concentrated Northeast market.

“Central Connecticut is attractive to logistics and e-commerce companies due to the convenient transportation network of I-84, I-91, I-95 and the Mass Pike,” said Shawn McMahon, executive vice president of Jones Lang LaSalle (JLL) in Hartford, a commercial real estate and investment firm. “These companies can access a population of millions very conveniently.”

According to the Avison Young report, investment activity in Greater Hartford's industrial sector accounted for 50 percent of the region's commercial real estate deals during the first half of 2016; last year industrial transactions represented only 5 percent over that time period. The Amazon sale was a major factor in the increase. The next largest industrial deal was the $22.4 million sale of a 616,000-square-foot manufacturing facility in Newington, 475 Willard Ave.

In contrast, office transactions, which accounted for 45 percent of total deals during the first six months of 2015, only represented 1 percent of commercial investment activity through this June. The Avison report did say, however, that there are a “plethora” of office deals still pending that could significantly boost sales volume in the second half of the year.

The numbers in Greater Hartford also seem to buck a national trend for the first half of the year, when industrial sales volume nationwide declined by 27 percent compared with the prior year.

McMahon said the region's industrial sales activity is indicative of the healthy distribution facilities market in Hartford and New Haven counties, where major distributors have built new facilities in recent years. In addition to Amazon's distribution hub, for example, FedEx broke ground in May on its 525,000-square-foot distribution center in Middletown, scheduled to open in Aug. 2018.

This activity comes as demand for commercial space from e-retailers is expected to increase in North America. In 2014, e-commerce sales totaled more than $305 billion and are projected to grow by nearly 80 percent to more than $548 billion by 2019, according to Statista, which tracks e-commerce sales trends.

Space constraints

While Connecticut is well-positioned to take advantage of the growing demand for e-commerce goods given its central location to the Northeast's metropolitan hubs, it may have a shortage of available properties that meets the demands of today's clientele.

“Facilities with favorable ceiling heights — 24 feet or higher — and good column spacing, are seeing the most activity,” McMahon said. “Older facilities with lower ceilings and tighter spacing struggle to attract buyers or tenants.”

That's because the demand for certain amenities has changed for industrial clients, said Erron Smith, real estate program manager for the Connecticut Economic Resource Center.

“Advancements in modern manufacturing require different types of space,” Smith said. “The challenge for Connecticut — with its old industrial roots — is to find a way to take old, functionally obsolete properties and make them up to date and utilize them for operations again.”

The fact that industrial sector sales activity is outpacing all other realty segments isn't surprising, Smith added, because it reflects a changing workforce and explosion of e-commerce, which is driving the types of properties — less office space, more warehouse space — that are in demand.

“We're living in a more innovative economy with an increasing number of contract workers and more telecommuting,” Smith said. “It's a new normal.”

Mark Duclos, president and co-founder of Hartford-based Sentry Commercial, which specializes in brokerage and consulting of industrial and office sectors, says that the limited supply of modernized industrial space has driven sales prices up in Connecticut.

It's also driven rents up. According to the Avison Young report, while the region's office and retail rents have remained static, industrial rents in Hartford have seen notable increases.

That's helping put Greater Hartford's commercial industrial market — which collectively generated $303 million in sales volume among all asset types through June — on track to surpass last year's $596 million in registered commercial real estate sales.

And that's good news for the capitol region.

“In general the Hartford commercial market is healthy,” said JLL's McMahon. With numerous residential developments, a downtown stadium and the new UConn Hartford campus, McMahon said, there's a lot of interest from companies looking to relocate to Hartford's central business district.

“I think 2016 will end up being flat (vs. 2015) for office space in Hartford,” he said, “and a great year for industrial real estate.”