LOS ANGELES—Some developers are concerned that the major industrial markets—namely Los Angeles, San Francisco, Miami and New Jersey—are “frothy” at this point in the cycle, according to Jim Klein, SIOR, the president of Klein Commercial. Klein is moderating the CEO Power Panel at NAIOP's I.CON '15 conference June 10 and 11 in Long Beach. The panel is staked with developers who will talk strategy and the state of the market, as well as some of the challenges they are facing, despite the soaring demand.

“All the developers feel very comfortable with the market right now. They see at least a few good years ahead,” Klein tells GlobeSt.com. “The biggest concern is that developers think that these markets are frothy, and at this point, several are very careful now about what they buy. The opportunities in those top markets to make some money really happened a couple of years ago, so most seem focused on infill projects, if they can find them, because those seem somewhat less risky. However, in infill markets, unfortunately, it is mostly bad pieces of land and sites that are environmentally challenged. I would say that developers are picking markets that are less intense at this point.”

When identifying a development opportunity, developers are focusing on local dynamics and are paying a lot of attention to supply—preferring to scoop up sites in land-constrained or supply-constrained markets where demand and population levels continue to grow. According to Klein, for the past several years, these developers have been focused on developing 1-million-square-foot facilities for consumer products companies. “That trend could be on the wan,” says Klein. “Now, there is a secondary e-commerce movement to get into the population dense markets, and those are relatively smaller warehouses.”

That isn't the only trend that is shifting for developers. Klein says that developers now prefer speculative buildings as well because the returns are better. “One- to two-years ago, build-to-suit was a good opportunity on a risk-adjusted basis because you had the tenant in hand, and you weren't taking a leasing risk,” he says. “Now, with the intensity of tenants and demand, and in some places supply constraints, developers are a lot happier going spec and building into the market because they are getting a better return.”

On the panel, Klein will touch on everything from how the CEOs are finding yields and how they look at the business differently than a development officer to what is driving demand and the challenge of developing in infill markets. Don't miss the discussion at NAIOP's I.CON '15 June 10 and June 11 in Long Beach.