By Michael G. McGuinness
Industrial real estate is still surging as commercial real estate’s hottest property type, and that’s no more evident than right here in New Jersey. Our market is growing exponentially, thanks to our proximity to the deep-water cargo Port of New York and New Jersey, a vast logistical infrastructure network of highways, air and rail freight capabilities and the most concentrated and affluent consumer market in the U.S.
Mammoth projects surround us: from the 4.1 million-square-foot Linden Logistics Center in Union County, to Bergen County’s former Kingsland landfill that will be rehabilitated into 3 million square feet of industrial space. Both projects are advancing on formerly contaminated sites within a few miles of New York City, with easy access to myriad consumers and a broad-based workforce.
Given this frothy market and the strength of the companies and decision-makers based here, NAIOP is bringing its renowned I.CON industrial conference back to Jersey City in September. More than 800 leading industrial developers, owners, brokers and professionals will gather for an in-depth look at the market’s most innovative projects and discussions of national trends.
The opening session, “2020 Industrial Market and Economic Trend Outlook,” will focus on national demand for industrial space, underpinned by NAIOP’s semiannual Industrial Space Demand Forecast, authored by Dr. Hany Guirguis of Manhattan College and Dr. Joshua Harris of New York University. Harris, director at NYU’s Schack Institute for Real Estate and a NAIOP Distinguished Fellow, will share insights from the most recent forecast, which says that across North America, net industrial space demand will remain steady in 2019 at approximately 57 million square feet per quarter.
Much of that demand is coming from consumers’ expectations for one-day delivery. In a June interview with Bisnow, Harris observed that the industrial sector can take a lesson from retail here: “Retail developers have always been keyed into where people are moving, where they’re flying, where they’re retiring. The demographic composition and income characteristics of cities are going to become more and more important for industrial developers.”
According to a June 11, 2019, CBRE Report, the growth of online grocery sales could create demand for up to 100 million square feet of industrial cold storage space over the next five years. A recent report from the Food Marketing Institute and Nielsen projects that groceries ordered online will account for 13 percent of total grocery sales by 2022, up from 3 percent in 2018. Such growth would amount to an additional $100 billion in annual online grocery sales. How will that affect the logistics supply chain and how cold storage properties are valued? Typically built to suit, cold storage space can be costly, although spec projects are possible. The I.CON session “Food Storage: Growth and Opportunities” will explain that while cold storage currently accounts for a small fraction of industrial space overall, the sector is poised for takeoff. New Jersey currently ranks 10th among the leading states for cold storage, with nearly 137 million square feet.
Growing e-commerce and industrial/warehouse space demand requires a solid workforce, yet the number of available employees needed to operate these facilities has lagged. A session titled “Industrial Workforce for Tenants” will cover factors influencing this phenomenon such as availability of mass transit, changing immigration policies, and the impact of cost of living differentials. Companies are feeling the squeeze, and some, including industrial giant Prologis, are launching initiatives that respond to tenants’ pain points by placing high school students in local trade internships. Yet, critical questions on how to recruit and retain workers to meet increasing demand remain unanswered.
One of the biggest challenges created by the booming e-commerce market is reverse logistics: Who handles all those returns and what happens to seasonal items and those that can’t be resold? Returns are no small number: CBRE research says that while the average rate of return for in-store purchases is around 8 percent, returns for online purchases range from 15-30 percent. “The speed and efficiency with which a company can process and resell or dispose of online returns can be the difference between making money or losing it on their holiday e-commerce sales,” according to David Egan, CBRE global head of industrial and logistics research.
Retailers are experimenting: Third-party physical retailers are accepting returns from pure online retailers (think Kohl’s accepting Amazon returns). The most effective retailers and shippers have built their supply chains to handle the reverse flow of merchandise or hired the right partners to do it. Are reverse logistics centers a good reuse of abandoned shopping malls? If so, New Jersey may be well-positioned to meet this growing demand. GlobeSt.com featured such a concept that reimagined a vacant department store as a mix of small, experimental retail spaces and a fulfillment center for online retailers. The article features Case Equity Partners, a real estate investment firm experimenting with a new model called “shopping fulfillment centers” that combines shuttered department stores and the demand for fulfillment warehouses to create a new retail solution. The I.CON session “Reverse Logistics” will explore the most cost-effective approaches for integrating these critical plans into the supply chain and strategies that work for small and large retailers.
Deep dives into some of the region’s most notable projects will give those visiting the market an insider’s view, including a “Multistory Debate” session on an 18-acre site in Brooklyn, the future home of Sunset Industrial Park, a four-story, 1.3-million-square-foot distribution center, the largest multistory warehouse in the U.S. “Institutionalization of the Industrial Real Estate Industry” will offer insight into the domination of corporations specializing in real estate investing, with a specific look at the new Linden Logistics Center, where institutional investors were integral.
I.CON will be held Sept. 12-13 at the Hyatt Regency Jersey City. The agenda and registration are available at www.naiop.org/iconeast19.
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.