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Filling warehouse space in a down economy

Peter O'Dowd Dec 27, 2011

Adriene Hill: Looking for a place to open your business? In Phoenix, entrepreneurs have been shunning traditional retail storefronts in favor of industrial space. But city planners — and even some landlords — aren’t nearly as enthusiastic.

Peter O’Dowd has our story.

Yoga instructor: Exhale. Good. Inhale.

Peter O’Dowd: The folks at Hegel Yoga wanted something big.

Tish Hegel: So you can let go and breathe and not feel claustrophobic.

And Tish Hegel found it here, in this warehouse in Tempe, just east Phoenix.

Hegel: When I moved over here, I doubled my square footage and my rent went down by a third.

Hegel is like a lot of other non-industrial business owners in the Phoenix area getting a deal on empty warehouses. After the financial meltdown, all sorts of industrial buildings emptied out, and rents are now more than 20 percent cheaper. Hegel had no trouble renting the space. But not every business owner is so lucky.

Rob Martenson is a broker with the real estate firm Colliers International. His cautionary tale took me to a 30,000 square foot warehouse near a suburban airport. The building went up at the height of the real estate boom.

Rob Martenson: So it’s been vacant for quite a while.

O’Dowd: Was there ever a tenant in it?

Martenson: Nope.

There was plenty of interest — mostly from non-traditional tenants like a skateboard park and a military museum. But these users needed expensive zoning adjustments and permits. In this case, the landlord didn’t want to bother.

Martenson: You could spend a lot of money to improve the building. And then if that tenant goes broke, you end up losing even more money. A lot of times it’s just not worth the risk.

Eventually the warehouse went into foreclosure. Sometimes, it’s cities themselves that keep non-traditional tenants out of industrial buildings. Churches have moved into many warehouses, but not in the suburb of Glendale.

Jon Froke: That can be a challenge.

Jon Froke is the planning director. Zoning laws forbid churches in Glendale industrial parks.

Froke: If I’m an industrial user and I’ve put a million dollars on building up my business, I don’t really want to be impacted if somebody next door is going to complain about noise, dust, heavy trucks.

But the city doesn’t want to turn away potential tenants. Froke has helped churches looking for warehouses find space more compatible with their use.

In Phoenix, I’m Peter O’Dowd for Marketplace.

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