The boom in construction of warehousing and distribution centers in the United States is attracting global investors, there may be greater concentration of property ownership into fewer hands, while ecommerce growth and expansion of the Panama Canal reshape the map of industrial development.
Those are the predications of Aaron Ahlburn, senior vice president and Americas director of research, industrial, for the giant international commercial real estate firm of Jones Lang LaSalle.
“Retailers and other warehouse occupiers are growing their distribution center footprints across the United States, and ecommerce continues to stake its claim on the fulfillment and ‘last mile’ landscape,” he points out.
“The sector will also continue to see growing interest from foreign investors; and the Panama Canal expansion set to open in spring 2016 will help reshape supply chains and industrial development,” Ahlburn adds.
The global commercial real estate services company Cushman & Wakefield reports that during the fourth quarter of last year U.S. industrial vacancy reached a 15-year low, making 2015 net occupancy gains among the strongest on record.
John Morris, C&W’s executive managing director of Logistics & Industrial Services for the Americas, expects continued strength in demand and believe the biggest unknown is supply.
“A significant driver of the historic demand witnessed over the past few years has been the ongoing transformation of how we shop and buy,” he observes.
“The upward pressure that has been put on commercial real estate continues and will make demand for industrial distribution product in 2016 similar to the pace of the past year. The biggest unknown is what happens with supply.”
U.S. industrial markets absorbed 62.9 million square feet (msf) of space in the fourth quarter of 2015, up 9.1% from the previous quarter and up 0.5% from the fourth quarter of 2014, C&W reports.
For all of 2015, net absorption registered 238.6 msf, which places 2015 among the strongest years of net absorption gains on record. The national industrial vacancy rate fell 80 basis points from the fourth quarter of 2014 to 7.2%. Industrial vacancy is now a full 220 basis points below the historical average.
Ecommerce Reshapes Industry
JLL’s Ahlburn says that thanks to a series of large-scale portfolio deals in recent years, the overall ownership landscape for industrial and distribution properties in the U.S. is seeing a significant shift toward institutionalization. “That means that more Class A industrial and distribution center real estate will sit in the hands of increasingly fewer owners,” he says.
All of the prominent commercial real estate observers say it is impossible to overemphasize the role ecommerce is playing in warehouse and distribution property development.
“Ecommerce is a game changer, and its impact goes well beyond the retail sector,” declares Richard Barkham, global chief economist for the real estate services company CBRE.
CBRE predicts that total global online sales will reach $3.5 trillion by 2019, and that will increase the need for industrial properties toward mid-sized and bigger distribution centers that are located near large population centers.
JLL’s Ahlburn agrees that retail will drive demand for smaller industrial facilities in or near urban centers.
“For brick-and-mortar and ecommerce retailers alike, the ‘last mile’ means striking the not-so-simple balance among delivery time, service and cost,” he explains. “Companies will continue to test same-day delivery services.”
Industrial developers need to be aware that service delivery factors now shape real estate decisions more than ever before, and that even seemingly minor efficiencies can lead to benefits in not just today’s – but also tomorrow’s – ultracompetitive consumer environment, according to Ahlburn.
Recognizing the importance of distance to customer delivery, it is notable that operations located within the 20-mile ring of major cities typically handle fast-moving, high-cost and time-sensitive products like mobile phones and groceries, he says, while those more than 75 miles from urban centers tend to handle slower-moving, less time-sensitive products, like furniture and discount apparel.
But that is changing as the result of the embrace of omnichannel distribution by retailers who already have partitioned their warehouses to accommodate wholesale operations, store inventory replenishment and ecommerce fulfillment in the same space.
“As supply chains continue to grow in complexity, functionality within the ‘box’ will need to be addressed as well, from sort center locations to returns, and fulfillment to distribution,” Ahlburn says. “Wholesale mixing center operations need larger footprints to keep more types of inventory on hand for delivery to regional retail stores.”
How to Deal With Workforce Tattoos
A growing concern for employers is the burgeoning popularity among the workforce of body art, and visible tattoos in particular.
More than 20% of adults are now tattooed. This number only will be increasing because 38% of millennials (born from 1981-1992) have tattoos, approximately half of whom have two or more, while 23% of millennials have body piercings.
Although the military and some police departments are reconsidering their bans of visible ink, 60% of human resources professionals reported that visible tattoos would have a negative impact on an applicant’s chance of being hired, and 74% said the same thing about facial piercings.
“Other than a few locales prohibiting ‘personal appearance’ discrimination, there is no overt protection for employees with body art,” notes attorney Garrett David Kennedy of the law firm of DLA Piper LLP.
However, he warns that employers should be wary of inflexibly prohibiting visible body art. This is not just another dress code issue, and courts closely examine the facts in each case.
“There is very real a disparity in who has body art – one study found that roughly 47% of Hispanic and 33% of African-American respondents had body art, both well above the national average,” Kennedy
Limits on employees showing body art should be based on a business plan to present a “neat, clean and professional image,” he says, which so far has been legally supportable in customer access jobs.
Kennedy also says the policy should be flexible, offering reasonable accommodations, such as allowing employees to cover the body art, should be consistently applied throughout the workforce to avoid discrimination claims stemming from disparate treatment.