A rendering of Sunset Industrial Park, a planned four-story, 1.3 million-square-foot industrial project by Bridge Development Partners and DH Property Holdings — Courtesy: Bridge/DH Property Holdings
By Michael G. McGuinness
Amid a strong economy and surging demand for consumer products, industrial remains one of the hottest segments in the commercial real estate industry. Note Blackstone Group’s recent purchase of 179 million square feet of urban infill real estate from leading global logistics investment manager GLP — despite a minor cooling off predicted for later 2019 after years of exceptional growth powered by e-commerce and demand for last-mile distribution facilities. The first quarter 2019 NAIOP Industrial Space Demand Forecast sees demand remaining steady at 57 million square feet of absorption per quarter, roughly the same as 2018. Vacancy rates are just 7 percent nationally, only 3.1 percent in New Jersey, and as low as 0 percent in the 7A submarket. The strong demand for space is pushing industrial developers to innovate.
This innovation is taking the form of multistory distribution centers, on-demand space, robotics and online freight brokerage services. In “Industrial Development Goes Vertical,” author Jay Todisco, AIA, LEED AP, an executive vice president with Ware Malcomb, examined how “a warehouse on top of a warehouse” could be used in land-constrained submarkets where land costs are high. These infill facilities ease traffic congestion and speed up the last-mile delivery of goods due to their proximity to consumers who are willing to pay a premium for same-day service. While multistory industrial buildings are more common in Asian markets, such as Japan and China, three projects are planned in New York City: a two-story warehouse in the Bronx and two facilities in Brooklyn — a four-story facility in Sunset Industrial Park and a three-story facility in Red Hook.
Demand for flexible on-demand space is growing as retailers aim to deliver goods faster and logistics companies struggle with last-mile distribution challenges. Technology platforms such as Flexe and Stord connect companies needing warehousing space to those with extra space on hand. These businesses fill a market gap for retailers, distributors and manufacturers that require only seasonal space and can provide inventory management and order fulfillment services. Within the next five to 10 years, “on-demand warehousing services will become a reasonable alternative to traditional leasing,” wrote Ben Conwell, senior managing director and e-commerce advisory group leader for Cushman & Wakefield, in an article for Inbound Logistics. “They will not dominate the industry, but they will grow to fill a gap in the market. Like the impact that Airbnb has had on hotels, the platforms will serve as a disruption, and the traditional industry will have to adapt.”
Companies are rushing to fill this niche and meet consumer delivery expectations, according to an article from Bisnow. Last year, UPS launched Ware2Go, a service that recruits and certifies warehouses for merchants. In addition to new designs and uses for industrial buildings, high-tech solutions are making the transportation and storage of goods more efficient. Online booking systems that give companies access to space they need for a limited time are already in operation across Europe and the U.S.
“It’s about agility,” says Jon Sleeman, EMEA Logistics & Industrial research director at JLL. “Retailers need to be able to scale up and down and have highly variable requirements — be that Black Friday, Christmas or sales season.” On-demand warehousing has potential for businesses working on a local scale and for those with international distribution networks looking to reduce capital expenditures or build their network in certain areas. Smaller retailers could consider stripping back their occupancy to a “core network” and using on-demand facilities more, says Sleeman. It could also support the growth of smaller businesses — particularly e-commerce firms — that have lower budgets, but still must meet consumer expectations for fast delivery. “For bigger retailers, using on-demand warehousing to supplement rather than replace their existing facilities is logical,” Sleeman adds.
“However, some warehouse owners are reluctant to adapt to the changing needs of their tenants,” says Sleeman, with traditional leasing structures the main stumbling block. “It’s a big step from secure income, medium or long-term leases to what is essentially a ‘pay-as-you-go’ model,” he says. “Most landlords want a more certain income stream — a tenant to sign, stay and commit. It’s easier.” Yet new technology could help. In the U.S., startup OLIM has launched an online platform that includes daily warehousing on demand across the country. “On-demand warehousing platforms have to be supported by substantial data on the inventory of buildings, the requirements of companies and the volatility of their activity,” Sleeman says. The on-demand concept could also extend to other essential components of the supply chain, with innovative solutions such as truck booking offering a solution for those in a rush
There is also robotics. GlobeSt.com reports that Siemens AG and Honeywell International Inc. have built robots that can pull packages from trucks and place them on conveyor belts. This could reduce the need for one of the most physically challenging jobs in the distribution sector. Amazon has started using new technology in a small number of warehouses that “scans goods coming down a conveyor belt and envelops them seconds later in boxes custom-built for each item.” The report says the company could install the machines in 55 U.S. fulfillment centers, possibly eliminating 1,300 jobs in the process. The company says it will be at least a decade before technology advances to the point where full automation becomes feasible. Another example of innovation is Amazon’s digital freight brokerage website, freight.amazon.com, according to a report from FreightWaves, which found that prices on freight.amazon.com are undercutting the current market by around 30 percent.
Learn more about this topic at I.CON East, September 12 and 13 at the Hyatt Regency Jersey City. Big ideas, trends and new technologies in industrial development will be featured, along with tours and programs on multistory development, reverse logistics, industrial workforce solutions, capital markets, food storage facilities, institutionalization of industrial, investing in an ultra-competitive marketplace, retail and sustainability.
Note: Portions of this article were taken from the May 22, 2019 blog post by Trey Barrineau, Managing Editor, Publications for NAIOP, http://blog.naiop.org/2019/05/industrial-sector-embraces-innovation-as-consumer-demand-stays-strong/
Michael McGuinness is CEO of NAIOP New Jersey and has led the commercial real estate development association since 1997. NAIOP represents developers, owners, asset managers and investors of commercial, industrial and mixed-use properties, with 830 members in New Jersey and over 19,000 members throughout North America.
