Titan Development and the Sansone Group have engaged CBRE and Aquila to market a 208,560-square-foot speculative cold storage industrial building within Innovation Business Park in Hutton, Texas.

The state-of-the-art facility will have temperature capability from 40° to -20°, 50’ freezer clear heights, and is slated to break ground in Q2 of 2024.

CBRE’s Jason Lev and Jimmy Kowalczyk and Aquila’s Omar Nasser will market the opportunity on behalf of Titan Development and Sansone Group.

Located 30 minutes north of Austin, the property is situated in one of the fastest-growing cities in Texas, with a population of 581,027 within a 15-mile radius. Hutto is known as a transportation hub, with Dallas, Houston, and San Antonio all located within 2.5 hours drive time.

84 Lumber, the nation’s largest privately held supplier of building materials, has signed a 142,100-square-foot long-term lease in the Barker Cypress Distribution Center at 12020 Barker Cypress Road in Cypress, Texas.

The landlord, Molto Properties, was represented by Wes Williams of Colliers and Conrad Bernard of Boyd Commercial. 

Barker Cypress Distribution Center is a new Class-A distribution building in Northwest Houston with 142,100 square feet of space on 11.92 acres. It has frontage on both Barker Cypress and Highway 290.

Williams and Bernard helped the Molto team acquire the land site on Barker Cypress and oversaw the successful lease-up of the project. 84 Lumber has leased the entirety of the available space. 

Another record-setting year. That’s what the data center industry enjoyed in 2023, according to the latest research from Colliers.

According to Colliers’ 2024 Data Center Marketplace report, the overall U.S. data center vacancy rate tumbled to 1.7% last year, with demand for data center space especially strong in markets such as Dallas, Atlanta and Northern Virginia.

But it’s not just these major markets that are enjoying soaring demand. Colliers reported that Midwest markets, too, are seeing demand climb for data center space, pointing specifically to the Ohio market of Columbus as a hotbed of activity in this sector.

The low vacancy rates in the data center space aren’t a surprise. Companies need ever more data center space. This is a trend that isn’t slowing anytime soon. Just consider these numbers attributed to Statista Market Forecast: Global data center revenue is projected to have reached $325.9 billion in 2023. By 2028, data center revenue is expected to reach $438.7 billion, according to Statista.

What’s driving this growth? Plenty of it is because of the explsoive growth of AI.

As Colliers says in its report, 2023 will be remembered as the coming-of-age year for AI. Applications such as ChatGPT and Dalle have captured the imagination of companies and individuals, both of which are already testing the limits of what this technology can do. Colliers said that ChatGPT reached 100 million users across the globe in just two months. That’s impressive, especially when you consider that it took Facebook four-and-a-half years to reach this same milestone.

Colliers says that the ability to scale resources on demand, critical to the rapid growth of AI, is driving demand for hyperscale cloud providers like Amazon Web Services, Google Cloud and Microsoft Azure. Because of this, hyperscale providers increased their megawatt output across North America to more than 15.2 gigawatts last year, 17.8% more than the previous year.

This all points to 2024 being an even busier year in the data center market. Expect a surge in consruction of these facilities this year and continued tight vacancy rates.

Colliers reported that for the fifth consecutive year, the U.S. data center sector set a new record for absorption last year, absorbing 3,870 megawatts in 2023.

In somewhat of a surprise, the total amount of power under construction last year fell on a year-over-year basis by 68.8 megawatts. This wasn’t because of a lack of demand, though. Instead, the slowdown was caused by a lack of shovel-ready sites. Still, 282.1 megawatts of power was under construction last year.

This doesn’t mean that the data center space is free of challenges. Colliers pointed to NIMBYism as a big issue. Many residents don’t want large data centers built near them, and they will fight new construction.

Then there is the labor shortage in the construction field. It can be challenging for developers to find the workers they need to build all the data centers that their clients demand.

Construction costs are high, too, which can make it difficult for developers to build today.

“It’s harder to source the debt and equity to get the scale of these transactions done,” said Michael Johnston, partner with Menlo Equities, quoted in the Colliers report. “The required yields are not going down since you have to make enough of a profit margin to justify taking the associated risk. I don’t see this changing in the short term.”

Rafal Rak, president of VP Digital Realty, agreed that costs are posing a challenge to developers.

“Supply chain and associated costs are still in flux,” Rak said, also quoted in the Colliers report. “In particular, electrical equipment is still challenging and has tremendous risk.”

Then there are the challenges associated with the speed of how the data center industry is evolving. As Colliers says, data center designers and operators must constantly adjust to evolving technology, everything from the need for increased power density and cooling efficiency to security, remote monitoring, sustainability and green designs.

An example? Meta has stated that its upcoming AI-powered data centers will incorporate an expanded utilization of liquid cooling.

“The evolution of the data center industry continues to be dynamic with increasing cloud adoption and expanding use-cases for AI,” said Carrington Brown, senior managing director of development for Affinius Capital, as quoted in the Colliers report.

In the final quarter of 2023, Wan Bridge had the exciting opportunity to be filmed and featured in an upcoming episode on Lifetime’s Designing Spaces, highlighting us as a pioneer in the build-to-rent industry. Set to be live on TV this Sunday, March 3rd, at 11:30 am, viewers are invited to tune in to witness a glimpse of our charming Lakeside Conroe community. With lights, camera, and action, the excitement mounts as we prepare to share our story with audiences nationwide.

This episode will spotlight our innovative approach and vibrant culture, thanks to the dedicated efforts of the Wan Bridge and Lakeside Conroe team along with our amazing volunteer interviewees. Adding to the anticipation, Designing Spaces recently had us in a live YouTube premiere on Saturday, February 17th, and the Wan Bridge team got together on the 20th for a team watch party. Furthermore, mark your calendars for a later airing on Saturday, March 9th, at 10 am, for another chance to catch the episode. For those eager to explore further, check out our Wan Bridge community yourself and experience the charm firsthand at Lakeside Conroe.

Stay connected via our social channels as we redefine the rental experience and shape the future of real estate together! Discover more about Designing Spaces and the YouTube premiere down below! CHECK OUT LIFETIME’S DESIGNING SPACES  DESIGNING SPACES YOUTUBE PREMIERE

In the face of today’s economic landscape, the construction industry is facing a variety of business issues and challenges. These issues are not uncommon as far as business dynamics go, but there are certain characteristics that make them uniquely taxing and require specialized strategies to provide impactful outcomes.

The issues affecting virtually all construction businesses according to their unique circumstances or nuances include:

1. maximizing business operations as expenses rise and profits narrow.
2. controlling labor issues and costs at a time when wage inflation still exists, and
3. identifying and leveraging the benefits of technology without investing too heavily with human or financial capital.

Maximizing business operations and profitability

With the volume of construction projects slowing because of the economic climate, there likely will be increasing competition for projects which may put pressure on companies to sharpen their pencils to win. With other expenses including materials, labor and insurance increasing, profit margins already are being squeezed.

This makes efficient operations and a focus on profitability even more critical.

Profitability can vary significantly among general contractors, subcontractors, and specialty trades, depending on size, sophistication, and management practices.  According to the Construction Financial Management Association’s 2023 benchmarking study, in 2022 the top quartile performing construction firms averaged a 9.9% net profitability level. The overall average was a net 4.9%.

The difference between “best of class” and “average” likely can be attributed to greater efficiencies, more accurate estimating, better managing of overhead expenses, and quicker responsiveness to challenging business issues and market conditions.

Monitoring and paying close attention to cash flow trends and benchmarking profitability are among the best solutions for construction and related companies of any size to mitigate certain pressures associated with improving business and financial operations.

• Cash flow options— examining payables and receivables is imperative to understand cash flow patterns and concerns. If it takes longer for money to come in than it does for it to be dispersed, the gap can cause significant operational problems. The greater the gap, the bigger the problem(s). Typically, the only way to address that gap—as it is occurring—is to take cash from the business or to rely on the availability of a business line of credit. Each of those “remedies” has a cost.

Taking cash from the business may deplete capital that was targeted for investment in the business to allow it to grow and expand. Delaying certain accounts payable can result in credit issues. A business line of credit can be expensive, especially because of interest rates that have risen dramatically in the last 18-24 months. The long-term solution is to narrow the gap between payables and receivables. In fact, managing the gap should be part of standard operating procedures.  There is hope on the horizon however as many leading economists are projecting interest rates to start decreasing in 2024.  In a recent survey of 40 economists, completed by the Financial Times and Kent A. Clark Center for Global Markets, 35% of the respondents believe interest rates will decrease by 50 basis points, with another 26% believing interest rates will decrease between 75 and 150 basis points. 

• Benchmarking profitability is another effective solution because it identifies what processes and procedures are working well and making a positive contribution, and those that are creating a financial deterrent to the business. For example, the benchmarking analysis should lead to identifying systems that can improve operational efficiencies by capturing overhead expenses in the bidding process. This analysis can also look more closely at and evaluate alternative ways of doing business that may have become standard but should be re-evaluated, such as whether to buy, rent or lease equipment.

Controlling labor issues

The cost and availability of labor are increasingly important and challenging issues. Based on data from the Bureau of Labor and Statistics, in the construction industry there is an employment gap of more than 4 million jobs: the difference between the number of job openings and the number of people actively looking for employment.

While there may be seasonal peaks and valleys, it generally is an issue that knows no geographic boundaries. Further, the issue is not unique to the availability of labor, but the costs too. Traditionally since at least 2016, construction wages have increased on average 2.8% to 3.8% per year, according to the Bureau of Labor Statistics. However, in November 2022 the annual rate of increase averaged about 6.1%, according to ConstructionConnect. That’s a sharp increase, even if the rate has experienced a slight flattening lately.

Historically, employment in the construction industry, which is physically demanding, could be lucrative, especially considered with other employment options. More recently, the gap has been narrowing. With employers like Amazon and McDonalds paying $18 to $20 an hour with limited or minimal physical demands, people who otherwise may have opted for a construction job are finding other opportunities. The older people get, the more they look for a job that isn’t as physically taxing.

In times such as these, where there may be a limited number of potential job candidates, construction firms can turn their attention to a couple of different solutions, one that is direct and one that is more universal.

• Incentive and compensation planning—when the pool of available workers is constricted it becomes more important than ever to retain the employees the company already has in place. Further, employee retention isn’t just about the hourly wage and paycheck. Therefore, a more comprehensive incentive and compensation planning exercise may be critical. Such an evaluation can help conceptualize creative programs that will keep people engaged and loyal to the company. Among some of the examples that can provide tangible, quantifiable employee loyalty and performance incentives include:
• Clearly defined future advancement opportunities.
• Bonus structures for those who are integral to projects staying on-time and on-budget; this typically applies to estimators and project managers.
• Phantom stock options that reward employees who contribute to overall company performance.

Innovation and artificial intelligence

Artificial Intelligence may be one of the most consequential developments impacting all types of businesses, including the construction industry. Yet like all forms of technology and innovation, the extent to which it is being utilized varies by company and industry.

In the construction industry, the two most prominent uses include a focus on safety and 3D modeling. Drones and cameras are commonly found on job sites not only to track construction progress, but also to monitor safety issues as well as potential hazards. For example, a drone camera flying a job site can identify whether construction workers are following all safety protocols in the work they are doing and appropriately wearing goggles, hard hats and other equipment. Further, 3D modeling can help the construction team see what’s going to happen with each subsequent stage of construction.

With AI early in its infancy, especially in the construction industry, there almost assuredly will be significant change in products and capabilities over time. Of critical importance to construction firms, whose profit margins already are being squeezed, is the ability to calculate the return on investment associated with any given AI solution. This requires an analysis of the different solutions that are available, and the costs associated with acquisition and training.

Navigating today’s business challenges is increasingly challenging. Yet in most situations, with innovation, expert assessments and well-thought-out plans, there are ample opportunities to make improvements in business efficiencies, operations and profitability.

Brian Kassalen is partner and construction industry leader with Baker Tilly.

JLL Capital Markets arranged the sale of two industrial logistics centers, Northwest Logistics Center in Houston and CentrePort 2 in Dallas/Fort Worth.

JLL represented the seller and procured the buyer, Sterling Investors.

CentrePort 2 is a 430,852-square-foot, cross-dock building, built in 2017 and featuring 97 dock doors and 32-foot clear heights. The property is located in the Upper Great Southwest submarket, directly south of DFW International Airport and with direct access to Highway 360 and Highway 183.

Northwest Logistics Center is a 411,460-square-foot, cross-dock building, built in 2018 and featuring 138 dock doors and 32-foot clear heights. The property is located in the Northwest submarket of Houston, within three miles of US-290.

In 2023, DFW and Houston achieved a combined 50 million square feet of positive net absorption, which accounted for over 80 percent of total net absorption in Texas and over 23 percent of the U.S. total. Both markets continued to see accelerated rent growth in 2023, with rents outpacing the prior year by 15.6 percent in Houston and 16.6 percent in DFW.

The JLL Capital Markets team was led by Industrial Group Co-Head and Senior Managing Director Trent Agnew, Senior Directors Charlie Strauss and Parker McCormack, Directors Tom Weber, Lance Young and Pauli Kerr, Associate Matthew Barge and Analyst Brooke Petzold.