The U.S. will need one billion square feet of industrial space over the next five years to keep up with e-commerce demand — one billion! We’ve heard a lot about the future of the office, but the industrial market is experiencing a similar transformation in warehouse design and logistics.
In a great article for Area Development magazine, John Dettleff, Senior Managing Director of Brokerage for Jones Lang LaSalle (JLL), provided a summary of the latest trends in industrial real estate.
Prior to COVID-19, online sales drove growth in industrial real estate. JLL found that nearly 35% of all industrial leasing was attributed to e-commerce pre-pandemic. After March 2020, as online sales exploded, demand for distribution space skyrocketed. Amazon alone represented 55% of total U.S. industrial absorption. The result? …a flood of investment dollars to build out the same-day/next-day e-commerce network.
Going forward, Dettleff points out these major trends in industrial warehousing:
Warehouse designers will increase emphasis on ergonomics and employee wellness. Amenities can help attract more workers; providing a safer, healthier environment plus enhance productivity.
E-commerce distribution centers will locate closer to the urban core and large population centers, which are already land-constrained, requiring the need to offer shuttle services for employees to and from public transit.
Distribution centers will borrow design elements from the office sector. Air conditioning, for example, is available to only 8% of warehouse workers! In order to attract employees, warehouses in the future will offer fitness centers, community spaces, and enhanced infrastructure such as air quality systems and natural lighting.
In the matter of scale, the new warehouses will be super large. Rural communities at the periphery of urban areas (like Lee County) provide significant opportunities for land-hungry distribution centers that require scale.
While the flow of capital into the industrial sector has provided some solutions to the backlog of industrial demand, land and building prices have increased significantly. Dettleff says the average deal price increased from $16 million in Q1 of 2020 to $19.1 million in Q1 of 2021.
Occupiers and investors make huge upfront investments in distribution centers in exchange for 10-to-15-year lease terms. However, recent shocks to the supply chain like the COVID-19 pandemic, the port of Los Angeles backlog, and the Suez blockage increase the need for flexibility.
Supply chain flexibility, such as new digital technology linking shadow industrial space or unused trailer parking, allows principals to transact on an incremental, on-demand basis. Sustainability will also be a driving force for change, requiring significant investments in high-efficiency roofing and insulation, LED lighting, rooftop solar panels, wind turbines, and other renewable power sources.
Warehouse and distribution centers have not been a traditional target for the Growth Alliance. However, our location plus new robotics and logistics technology may increase our opportunities in this sector.
Bob Joyce is Senior Director, Business Retention and Expansion, for the Sanford Area Growth Alliance.
Bob Joyce is Senior Director, Business Retention and Expansion, for the Sanford Area Growth Alliance.
