Soaring Like Icarus - Property Inflation in Food Manufacturing
The price of food manufacturing properties continues to rise. We referenced the dilemma occupiers face in an earlier blog. New construction is costly, available properties are few, and the pricing of modern facilities is unprecedented. A few observations on the latter.
Inflation in materials and labor makes existing properties more attractive, and increased demand elevates pricing. Evidence a few current transactions:
• $132.00 SF for a 42,000 SF Midwestern bakery plant;
• $213.00 SF for a 148,000 SF Mid-Atlantic frozen plant;
• $102.00 SF for a 342,000 SF Midwestern frozen plant;
• $161.00 SF for a 31,000 SF Midwestern dairy plant;
• $135.00 SF for a 51,216 SF Northeastern frozen plant.
These are eye-popping sales by historical standards, but several themes emerge. All were modern facilities, with no obsolescence and high-scoring audits (GFSI, SQFI). All but one was newer, with a credible production and sanitation infrastructure. All supported extensive automation, where volume is the antidote to thin margins. Lastly, all but one had deep-freezing capabilities, adapting to current consumer demands for frozen or RTE foods.
If the cost and delivery of new construction is prohibitive, prices will continue to rise. When occupiers include machinery and equipment in the offering, demand spikes further, as lead times for manufacturing and installation can approach two years. Few occupiers can withstand such protracted delay.
Less robust is demand for the national inventory of mediocre space, vacant and with levels of obsolescence. Facing rigorous audit scrutiny from customers, third parties, and regulators, older properties face significant investment and delayed occupancy, depressing price further. Whether buying or selling, connectivity to markets and occupiers matters significantly. Cresa’s Food, Ingredients, & Nutrition practice group (“FIN”) provides a rare expertise. For additional details, please contact Jeffrey J. Counsell, Principal & Practice Lead | Food, Ingredients, & Nutrition.
Inflation in materials and labor makes existing properties more attractive, and increased demand elevates pricing. Evidence a few current transactions:
• $132.00 SF for a 42,000 SF Midwestern bakery plant;
• $213.00 SF for a 148,000 SF Mid-Atlantic frozen plant;
• $102.00 SF for a 342,000 SF Midwestern frozen plant;
• $161.00 SF for a 31,000 SF Midwestern dairy plant;
• $135.00 SF for a 51,216 SF Northeastern frozen plant.
These are eye-popping sales by historical standards, but several themes emerge. All were modern facilities, with no obsolescence and high-scoring audits (GFSI, SQFI). All but one was newer, with a credible production and sanitation infrastructure. All supported extensive automation, where volume is the antidote to thin margins. Lastly, all but one had deep-freezing capabilities, adapting to current consumer demands for frozen or RTE foods.
If the cost and delivery of new construction is prohibitive, prices will continue to rise. When occupiers include machinery and equipment in the offering, demand spikes further, as lead times for manufacturing and installation can approach two years. Few occupiers can withstand such protracted delay.
Less robust is demand for the national inventory of mediocre space, vacant and with levels of obsolescence. Facing rigorous audit scrutiny from customers, third parties, and regulators, older properties face significant investment and delayed occupancy, depressing price further. Whether buying or selling, connectivity to markets and occupiers matters significantly. Cresa’s Food, Ingredients, & Nutrition practice group (“FIN”) provides a rare expertise. For additional details, please contact Jeffrey J. Counsell, Principal & Practice Lead | Food, Ingredients, & Nutrition.
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