TEXAS SNAPSHOT, APRIL 2012

Waco Industrial Market

Blessed with a diverse economic base and stable market growth, the greater Waco real estate market weathered the storm of the last 3 years rather well, with the addition of jobs and capital investment throughout the recessionary and sluggish recovery. Waco is one of only 34 of the 372 metros in the U.S. to have surpassed the pre-downturn employment. Capital investment in the past 5 years has totaled nearly $1.8 billion, including corporate, university, healthcare and public investments. Since 2010, the majority of industrial activity has represented absorption or expansion of existing facilities, including Allergan, Associated Hygienic Products, L-3 Communications and Coll Materials. Low vacancy, particularly in larger Class B or better facilities, coupled with little speculative development, is driving an increased review of new construction opportunities in Greater Waco in 2012.

The majority of industrial footprint, roughly 23 million square feet, located in Waco represents owner-occupied properties. Some of the corporate owners include familiar names like Mars, Coca Cola, Caterpillar, Alcoa, Allergan, L-3 Communications and Space X. Investor-owned properties are often local or smaller investors and do not represent national institutional investment, at least not yet.

Greater Waco’s industrial market is centralized in 11 business parks totaling 15,000 acres. Texas Central Park at Interstate 35 and Texas Highway 6 comprises more than half of the market’s industrial base with 13 million square feet, 88 tenants and 12,000 jobs in the approximately 3,700 acre master-planned development. Recent growth in Texas Central Park includes Allergan’s $89.5 million multi-year expansion in production and initial R & D capacity; Coll Material’s absorption of 105,000 square feet of plastic production; and Caterpillar’s opening of a fourth location in Waco. Caterpillar’s two product facilities and two distribution centers bring Caterpillar’s total footprint to 2.1 million square feet and 500 total jobs. These plants represent the most square footage Caterpillar has in any market outside of Peoria, Illinois.

In the southwest metro, the 8,700-acre McGregor Industrial Park is experiencing leasing activity as Space X (named the Top 100 most innovative companies of the past 100 years by MIT) expanded its lease by 250 percent and extended to 2020 with options through 2040. Space X is completing the second quarter of 2012 with construction totaling 80,000 square feet at their development campus, with the support of a proactive Chapter 380 development agreement.

L-3 Communications, Waco’s largest industrial employer with more than 2,000 aerospace jobs, is also Waco’s second largest industrial portfolio occupying approximately 1.4 million square feet at the Waco International Aviation Park at TSTC Waco Industrial Airport, a significant portion of which is located on a ground lease on the airport campus. The lease was recently renegotiated and extended to a longer term.

The exception in construction during the past 18 months is the reconstruction of 330,000 square feet at a former General Tire manufacturing facility in Greater Downtown Waco into the Baylor Research & Innovation Collaboration, anchoring the Central Texas Technology and Research Park. Phase II of construction begins this month, bringing total construction cost to $45 million to date. Phase II will include advanced lab spaces and preparation of academic and research space for multiple Baylor research centers, graduate level engineering and completion of 45,000 square feet of shelled industry labs.

The overall vacancy rate in Waco’s industrial market is approximately 6 percent with the majority of vacancies totaling 100,000 square feet or less. Average triple-net rental rates range from $1.80 to $4.20 per square foot and are firming up. Trends seem to indicate a continued increase in industrial space absorption, with very little planned speculative development.

Regarding the Waco metro office market, there is widespread misconception that the term “flat” is a negative one. Many markets would love to have stayed as “flat” as Greater Waco. The office footprint is approximately 7 million square feet and office vacancy remains around 5 percent. Class A towers, approximately 20 percent of the total market, have rental rates in the $15 to $18 per-square-foot range, full service area. Users represent Greater Waco’s professional and financial concentrations including insurance headquarters (Texas Life, Amicable Life Insurance Co., American Income Life, National Lloyds and Texas Farm Bureau), banks, franchising/licensing headquarters (Dwyer Group, Curves International and Profiles International) and healthcare processing (EMSI, Blue Cross Blue Shield and C3).

Absorption of the majority of the additions, which total nearly 200,000 square feet in new construction, conversions and reconstruction projects primarily in the Greater Downtown area and Southwest medical-office market, have resulted in stable vacancy rates. Waco’s office market outpaces industrial in the re-emergence of new construction projects, with more than 100,000 square feet beginning in the next quarter of 2012 — including a $6.7 million, 25,750-square-foot regional office, processing and donor center for Carter Blood Care and a $27.85 million, 88,000-square-foot headquarters campus for Brazos Electric.

In both industrial and office, there remains very little speculative construction. With continued pressures caused by absorption, coupled with limited speculative development, construction activity in Greater Waco’s office and industrial markets is beginning to resume in 2012 at a modest pace.

Economic diversity, depth of strong corporate owners and recent lease extension activity will fuel the ongoing stability and growth of Waco’s commercial real estate market.

— H. Bland Cromwell, CCIM, SIOR, partner of Coldwell Banker Commercial Jim Stewart Realtors. Cromwell is a 35 year veteran as an industrial real estate specialist in Central Texas. He has handled over $650 million in real estate transactions during his career and has been directly responsible for the majority of the corporate clients that reside in the Waco Industrial Park, including Allergan, Coca Cola, Caterpillar, to name a few. Cromwell has been in the top 10 in the country in production with Coldwell Banker Commercial since his firm’s association with Coldwell Banker Commercial in 1999.

©2012 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 553-9037.