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At least a few casual observers scoffed when Brennan Investment Group pushed plans for a 605,000-square-foot industrial building without tenants in place in Lakeland at the CenterState Logistics Park in early 2016.
There was some justification for the derision, after all. No one had ever attempted a speculative project of that size in the Interstate 4 Corridor, and until then, tenant requirements for warehouse space there had typically been somewhat smaller.
But the snickering evaporated when Pepsico unit Quaker Oats leased the entire CenterState structure just a few months after its completion, in one of the largest logistics leases along the Gulf Coast of the past decade.
Los Angeles-based real estate investment trust acquired the newly leased property, on 112 acres near Florida Polytechnic University, for $59.6 million in March 2018.
Now, Illinois-based Brennan is back, with another — and even larger — plan for a spec development at what it is calling CenterState Logistics Park East.
The planned 1 million-square-foot building is expected to go vertical this spring, with delivery during the third quarter.
The estimated $90 million project, on 165 acres in Lakeland, is ultimately slated for 1.5 million square feet.
Experts say larger distribution buildings will likely become the norm in the Interstate 4 Corridor and elsewhere as technology and population growth fuel greater efficiency and demand.
“The market continues to change,” says Bob Krueger, a Brennan managing principal and company co-founder in Tampa. “There was a time here when 400,000 square feet was a big building. But we built 600,000 and it was fully leased before we completed construction. Now we’re seeing that one million square feet is becoming more acceptable, even desired.”
As was the case with the first CenterState project, Krueger contends that having the largest building available at a time when logistics firms, online merchants and other retailers are scrambling to cut shipping times to consumers will be a boon.
E-commerce and the promise of quick delivery to customers is largely driving a majority of the distribution deals in the Interstate 4 Corridor, between Tampa and Orlando.
In addition to Walmart, Pepsico and Amazon — which this year is embarking on a third 1 million-square-foot fulfillment center in Polk County — companies like Home Depot have settled on sites or are firming plans for massive distribution centers that can cater to some 15 million consumers within a four-hour drive.
In the case of Home Depot, the Atlanta-based chain is planning an 800,000-square-foot facility in Plant City, in Hillsborough County. And Pepsico, in the wake of its 605,000-square-foot lease, committed to occupy a 440,000-square-foot building Brennan developed nearby, Krueger says.
“Consumer expectations have changed, and with it, the logistics and supply chain management business has changed,” says Ed Miller, an executive managing director with commercial real estate brokerage firm Colliers International Tampa Bay, who together with the firm’s Dee Seymour are handling leasing for Brennan’s new CenterState project.
“But it’s all being driven by Florida’s population growth and its GDP growth, together with the infrastructure and the investment that’s been made in the state the past 15 years,” Miller adds.
In addition to the sheer size of Brennan’s new building as compared to the former CenterState project, its height will be greater, too, from a ceiling of 36-foot-clear to 40-foot-clear.
That change will allow tenants to expand capacity in the cross-dock building into the future, Miller says.
“Most tenants won’t have to consider relocating when their business expands by 25% to 30%, because the size of the building will allow that expansion,” he says.
Miller says rental rates are still being formulated for the new CenterState project, but the space will likely rent for in excess of the $4.95 per square foot triple net that had been quoted for the initial Lakeland development.
And although building speculatively would appear to contain more risks than waiting on a retailer for a build-to-suit project, Miller and Krueger say that the reality is counter intuitive.
“With a build-to-suit, there are too many variables,” Krueger says. “Around the country, we see what distributors are looking for.”
“Most companies know that they will need distribution space six months out,” Miller says. “The problem is, building a building takes about a year, from the time a site is located to permitting to construction. Most companies can’t wait that long.”
Brennan won’t be the only developer working to satiate the need from tenants in the Interstate-4 Corridor, however.
Late last year, Parkway Property Investments of Orlando acquired 725 acres in Lakeland for $10 million, where it also is planning a business park capable of holding a 1 million-square-foot building, according to reports.
But while Brennan may face competition, Miller says the developer intends to remain patient through the construction process.
“In my experience people want to see the walls going up,” Miller says. “Tenants don’t want to commit until they see the roof going on and can take hold of whatever inventory they would plan to ship.”
Krueger, too, believes trendlines are in Brennan’s favor.
“You take a look at the demographics in the state of Florida, and people are moving here,” he says. “I don’t see any reason why that won’t continue, as long as the economy remains fairly robust. We’re at a point of unprecedented wealth in America, and this is the only place in the world where that’s happening.
“At the same time, technology is changing many of the very fundamentals of daily life,” he adds. “Everybody is engaged in e-commerce because it’s just so convenient.”
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