AThe two factors that would slow the market are a flat or shrinking U.S. GDP, and/or a significant slowdown in
trade due to a slowing global economy or political pressures.
However, both factors are mitigated to some degree by the
continued buildout of the e-commerce supply chain. Both
retailers and suppliers need more distribution locations to
get as close as possible to the consumer. This growth is not
as tied to the vagaries of the economy, and it is very likely to
persist regardless of any change in the economy.
QThe Federal Reserve is considering two, maybe three, more rate hikes in 2017. Will higher borrowing costs,
which would increase inventory-carrying costs, inject fric-
tion into the industrial market?
AHigher inventory costs are certainly an issue for supply chain players. However,
the Fed’s desire to raise rates would be in
response to its current and future perceptions of a strong economy. A strong U.S.
economy means a strong U.S. consumer
who is buying things. The growth in consumption is accretive to the users of supply
chain real estate. That should lead to further
topline growth and mitigate the higher carrying costs that would come from higher
rates.
QCBRE recently published a report on warehouse and DC development that predicted the
future of building design will be vertical rather than horizontal, making the measurement of cubic feet, or the “third
dimension,” more important. Can you explain the significance of this design trend, and its impact on warehouse
users and operators?
AModern fulfillment centers tend to have very large inventory counts and high throughput of small items
in contrast to traditional warehouses, which move inventory in large batches on pallets. Modern fulfillment is very
labor-intensive, so it is critical to design a warehouse where
people can get access to the items in the racks. The most
efficient design is to build taller warehouses for more volume, and then construct mezzanine levels on which people
can walk and get access to racks 30 feet in the air. A 40-foot
warehouse allows for three levels of mezzanine, which is the
most efficient and cost-effective use of the entire building.
QE-commerce is clearly driving this, but you said the rea- son behind taller warehouses is that users could install
more mezzanine levels to accommodate more pickers, not
because it would be a more efficient use of urban space
located close to many e-commerce end customers. Given
this thinking, is it possible that we will see skyscraper-type
warehouses dotting the rural landscapes where the tradi-
tional squat warehouses are located?
ASkyscrapers? No. While the average warehouse height is creeping higher, it’s important to note that the e-commerce user and XXL distribution centers still are a minority
of the supply and demand in the market. The majority of
the users are still somewhat traditional companies who adequately make use of smaller buildings.
QWill lower property costs be a side benefit of this trend because there will be less raw land needed?
ALand requirements for these large buildings are not going down even as the heights go up. These types
of facilities require excess land for parking for additional
employees, for extra trailer storage, and to
accommodate the extra truck traffic. The
latter because there are more truck visits to
these high-volume fulfillment centers than
to regular warehouses. Savings on the costs
of land is not really a feature of these buildings thus far.
QOn another front, users that are being priced out of expensive coastal markets,
as well as key inland commerce centers, are
looking at less-expensive markets long con-
sidered second-tier. Is the country’s trans-
port and logistics infrastructure capable of
supporting increasing demand in the nation’s interior?
AThe inland port infrastructure is solid, but it has room for improvement. We have seen secondary markets
such as Kansas City and Greenville/Spartanburg (S.C.)
make investments in intermodal infrastructure and capture
significant market share. As the major intermodal markets
like Chicago and Dallas near capacity constraints, other
smaller, yet well-located markets like Columbus, Ohio,
have the opportunity to capture outsized growth with
investment in inland port infrastructure, such as intermod-
al facilities and airports.
QWhat is the next frontier for industrial development? Is it geographic? Related to expansion of verticals?
AThe next interesting wave will be the addition of multi- level warehouses in the U.S. These are not warehouses
with extra mezzanine levels. Rather, we’re talking about
cubes stacked on top of each other, where each level can
accommodate trucks, and loading and unloading. This has
been common for some time in dense Asian and European
cities, and it will be necessary in dense, infill, land-con-strained areas in the U.S. We are seeing the first wave of
this in certain West Coast markets. We should see it rolling
out more broadly in the next several years.
