Abandoned golf courses are ripe for redevelopment and offer ideal locations for distribution.
E-commerce fulfilment does not usually trigger an image of grassy meadows and gently rolling landscapes, but there’s a growing convergence as industrial developers search for available land on which to build. Up against tight market conditions, along with increased values for land close to consumption points, developers and investors have to get creative with their real estate portfolios. One way is to take advantage of the large supply of defunct golf courses, which often have large-acre tracts and be located on major transportation corridors.
Conversion projects are not unique to industrial real estate; other high-performing sectors, such as multi-family residential and data centres, are also ripe for more development. But the case for industrial may be strongest, given market fundamentals. Demand has outstripped supply by an annual average of 72.4 million sq. ft during the past decade, driving up industrial rents by more than 50%, according to CBRE Econometric Advisors.
More recently, the covid-19 pandemic has increased e-commerce’s share of total retail sales, fuelling demand for industrial space. Online sales penetration is expected to reach 26% by 2025, up from 16% prior to the pandemic. By the end of 2020, there was 325 million sq. ft under construction. Despite robust development activity, the overall industrial vacancy rate remains near a historic low of 4.6%. New developments are getting leased up quickly, with 41% of buildings under construction having already secured commitment from an occupier.
The US is home to 14,145 golf courses, or over a third of the global supply, according to the National Golf Foundation. Since 2006, closures began to outnumber new course openings. The reason is twofold. Number one, there is an oversupply of golf courses. More than 4,000 golf courses were built during a 20-year stretch from the 1980s to the early 2000s. Many of these courses were attached to residential communities. Maintenance became too expensive, making the courses financially unsustainable. Coupled with declining interest from the Millennial generation, this led to more than 800 courses being closed over the past decade. Sports and Fitness Industry Association data shows a 35% decline in those playing golf between the ages of 18 and 30.
The numerous closures over the years freed up swaths of green space to be targeted by industrial developers. There are at least 19 projects recently completed or under way around the country in industrial hubs such as Dallas-Fort Worth, Atlanta, Chicago, Detroit, Phoenix, New Jersey and Miami, amounting to nearly 20 million sq. ft of industrial space. It is not surprising that these markets are ranked highly in CBRE’s Development Opportunity Index. In fact, Atlanta, Dallas and Phoenix are the top three markets for industrial development, based on construction costs, strength of supply, prior cycle performance and growth forecasts.
Since golf courses are typically located in proximity to residential areas, they are ideal sites for warehousing and distribution. These infill locations are highly sought after to fulfil the ever-expanding direct-to-consumer shipping requirements for e-commerce companies.
Whether developers are able to capitalise on land opportunities will depend on their ability to navigate complicated political and site-specific environmental challenges
Unlike retail sites, golf courses also offer wide land configuration, which is necessary for large warehouse buildings and truck courts. By contrast, using former retail sites requires demolition along with building around adjacent property, making industrial development difficult to scale up effectively.
The biggest challenge is convincing a residential community that warehousing is the highest and best use to replace a golf course. Nimbyism (not in my backyard) is a major obstacle during the planning phase. Local communities that value green space and recreational amenities often aren’t receptive to having industrial buildings replace a golf course. City councils may be reluctant to approve projects. Even if the golf course is not in operation, residents might be emotionally attached and see a threat to their property values.
For example, the Dallas 360 Global Logistics Park was up against strong opposition back in 2016. The developers were denied permits to redevelop a closed 164-acre golf course due to a law that was put in place to protect residential property values near the links. There was a subsequent legal battle between the developers and the city authorities, which ended in the judge approving the site plan application, allowing the project to move forward. The Class A business park now has three buildings 100% leased, with a fourth coming online in 2022.
Environmental hazards are also a major concern, even for well-landscaped golf courses. The longer the course was open, the more likely that it was exposed to insecticides, fertilisers or other harsh chemicals that can linger in the soil. Remediation takes time and can be prohibitively expensive. What’s more, the topographical features may not be suitable for large buildings and vehicles. And given the shortage of affordable housing in the US, there is a strong alternative case for residential or mixed use, creating a highly competitive environment among other types of developers.
The National Golf Foundation has reported that the rate of golf course closures is slowing; however, market corrections will continue due to a growing Millennial and Generation Z population base. Whether developers are able to capitalise on land opportunities will depend on their ability to navigate complicated political and site-specific environmental challenges. Experienced developers are fully cognizant of these challenges and can make their propositions work in a strong market with high demand for warehouse space from e-commerce and logistics tenants. Additionally, strong capital interest will fuel more development activity.
This trend will continue at a steady pace and may even capture a larger proportion of overall construction activity. Currently, the industrial footprint from these conversion projects amounts to roughly 6% of total buildings under construction. At the local level this brings potential for a big impact, especially in a smaller market. For example, a five-storey, 3.8 million sq. ft fulfilment centre is being built in place of a golf course and country club in the town of Clay, New York. The facility, set to be one of the largest in the world, is expected to employ 1,000 people and open by the 2021 holiday shopping season. There will be major implications for the small town, connecting it with the densely populated Northeast region.
There is a lot at play when it comes to redeveloping a golf course, and the market will ultimately dictate the velocity of conversion projects around the country. One thing is certain: industrial will remain a viable land use for the foreseeable future.
