BUENA PARK, CA—As more young people are receiving highereducation and are attracted to cities, fewer are entering theindustrial labor pool, making increased automation a necessity fordistribution centers, John C. Morris,Cushman & Wakefield's industrial serviceslead, Americas, tells GlobeSt.com. Morris says this phenomenon,combined with e-commerce, is making automationmore prevalent for manufacturers.

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As GlobeSt.com reported last week, Cushman & Wakefieldfacilitated the signing of a new,191,000-square-foot lease at 6300 ValleyView St. here between tenant ManhattanBeachwear and an undisclosed owner. The long-term leaseconsolidates three existing locations into one for the women'sswimwear manufacturer, which is reexamining its processes to becomemore efficient in its distribution capabilities.Here, more from our interview with Morris about the transaction andchanges in distribution space utilization.

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GlobeSt.com: Are manufacturers in general changingtheir processes to become more efficient in the wake ofe-tailing?

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Morris: First of all, yes. In the lastfour to five years, the amount of material-handling capitaldeployed per square foot of warehouse has beenrising significantly, and quite a bit of that is about e-commerce.In the case of Manhattan Beachwear, it may be all about e-commerce.They had been looking to do better with their storage and handlingprocesses.

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But it's a bigger picture than to just cite e-commerce as theentire reason why storage and handling processes have beenimproving and more heavily automated. The primary change is how theeconomy and job market are changing forindustrial labor. We do see more and more youngpeople living in the city, and they're attracted to urban,more-expensive environments. When you combine urbanization with anincreasing level of college education, college graduates andurbanely living young professionals are not goingto take industrial jobs for the most part. So, the employment poolfor Manhattan Beach and other shippers has been declining. When thelabor pool is declining and costs are rising, the only answer is toadd capital to your facility in order to become moreproductive.

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All of this is about shifting labor markets, but certainly theother key driver is e-commerce, which is picking one single item ata time for each customer instead of multiple items at a time for astore. We used to need warehouses to pick a palletful of goods andsend it to a store, which involves not as much automation aspicking a single item—a pair of shoes, a swimsuit—for one singleperson and sending it to their facility. Those kinds ofhigh-unit-cost warehouses require and justify significant amountsof capital. The companies are spending a significant amount, butthe ROI is positive.

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GlobeSt.com: Are these changes making an impact ontheir real estate choices?

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Morris: I think so. When you can moreeffectively deploy automation capital into a facility, two thingscan happen: You can go higher, so your opportunity to use clearheight increases the more you automate. Also, the buildingsthemselves from a structural perspective require a little morepower and steel—they're stronger and more-powerful buildings. And Ido think that when you can automate a facility and rely less onpeople, there's an opportunity overall to fit more inventory intothe facility, so it's a much better cube. It's automated, higherand bigger depending on their needs. What's making their buildingsbigger is that square footage is in the distribution center insteadof a storeroom.

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GlobeSt.com: What other changes do you notice in howmanufacturers and distributors are leasing space?

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Morris: Another big thing that'shappening is the ratio of construction that is built to suit. Fiveyears ago, spec construction was five times as large asbuild-to-suit construction, and in the last couple of years theratio has been much closer to 1 to 1. These facilities are verycustomized and specific in use. More and more shippers these days,product companies, will want a building to be built specificallyfor them,so we can all expect build-to-suits will represent asignificant amount of new construction-about 50% of newconstruction overall.

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Carrie Rossenfeld

Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.