Geographic and product diversification and a willingness to deal have helped The Opus Group climb three notches to No. 2 in NREI's 2002 survey of the largest industrial developers.
But that dramatic climb up the ladder by Opus is largely the result of an overall slowdown in industrial development by many of its competitors, a healthy sign for the sector, analysts say. Opus started or completed 11.6 million sq. ft. of industrial space in 2002, a 6% increase over 2001. In contrast, IDI, ranked No. 2 in last year's survey with 14.5 million sq. ft., dropped to the No. 4 ranking with 8.1 million sq. ft. started or completed in 2002 — a drop of 44%.
For Opus, the gradual pace of industrial development is expected to continue. This year, the company plans to start or complete 12.9 million sq. ft. Since its inception in 1953, Opus has developed 927 total industrial projects comprising 104.3 million sq. ft.
Looking For Niches
The company perceives itself as an opportunist. During its 50-year history, Opus has diversified into office, industrial and retail buildings, as well as institutional design-build construction and now residential projects. For example, Opus has announced plans for luxury condos in St. Petersburg and Boca Raton, Fla.
“When economic times change, different product types fall in and out of favor and we are reasonably nimble at making the adjustment,” says Jack Crocker, president and CEO of Opus North.
As the economy has slowed down, so too has the industrial market. According to Robert Bach, national director of market analysis at the Northbrook, Ill.-based Grubb & Ellis Co., in the first quarter of 2003 the national vacancy rate rose to 10.06%, the highest level since the third quarter of 1994.
The manufacturing sector — tied closely to the industrial market — has contracted as the Institute of Supply Management Index fell from 55.2 in December to 45.5 in April (the lowest reading since October 2001).
The amount of space industry-wide under construction has risen from 52 million sq. ft. in the fourth of quarter 2002 to 54 million sq. ft. in the first quarter of 2003.
Identifying A Deal
With asking rents having fallen in the first quarter of 2003 to $4.43 per sq. ft., which is a decline of 8.2% over the past four quarters, working the deal is important in today's marketplace. Crocker acknowledges that while there is industrial deal activity, prospect lists for speculative industrial projects aren't as deep.
So when a legitimate prospect is identified, one for whom the building works physically and locationally, “we will work very hard and aggressively to make that deal.”
Crocker adds, “At Opus North (which covers the industrial states of Illinois, Wisconsin, Ohio, Michigan, and Indiana) we have made over 1 million sq. ft. of industrial deals in our spec buildings since the first of the year.”
According to Crocker, within The Opus Group, Opus North has done the most industrial leasing. “We have somewhere in the neighborhood just shy of 2.5 million sq. ft. of industrial spec. And we have leased about 1 million sq. ft. of industrial space in that industrial spec product since the first of the year.”
Work In Progress
Major new projects for Opus North include the Melrose Business Center II in Melrose Park, Ill., an example of Opus' strategy of identifying existing facilities in old industrial complexes where the demand for space is good and users want to upgrade their facilities but don't want to move to a new area. The former site of a Zenith picture tube facility, Opus knocked that building down and put up a 454,910 sq. ft. distribution center. According to Crocker, “We've signed one major transaction, so it's about 44% leased.”
Opus' outlook for the national industrial market over next year is “cautiously optimistic,” says Crocker. That emphasis on caution is shared by industry experts, who say demand is still tepid at best.
Adds David Riefe, vice president of real estate at Opus North, “Major corporations are taking a long time to evaluate their options, to make final decisions and to commit to long-term lease obligations. Our business has to reflect that of Corporate America.”