LOS ANGELES—Where companies locate, how they leverage different-sized facilities and how inventory is held back from store shelves to reduce markdowns are just a few of the ways logistics will continue to shape the industrial sector, experts tell GlobeSt.com. We spoke exclusively with several logistics and industrial executives in the know about what we can expect as this sector continues to mature. Stay tuned for an in-depth feature on how logistics is influencing industrial development in an upcoming issue of Real Estate Forum.

GlobeSt.com: How do you see the industrial sector changing and developing as logistics becomes increasingly more important?

Adam Mullen, managing director, CBRE: What has already changed is that the desire to make it easy for consumers, whether ecommerce or omni-channel or industrial supplies, has made it very complex on the back-end. The laser focus on supply-chain design (right locations, doing the right things with the right capacity) will continue, especially as companies position for the future. Finding ways to increase the speed to market for space, increase the flexibility of that space and ensure that power, sprinkles, egress, etc., are right is also new. Of course, clear heights, parking, labor ramp-up/ramp-down, etc. will remain part of the conversation—that is a default now. Going forward, supply chain and logistics are driving a greater degree of sophistication in selecting locations. Once companies have determined the optimal balance between supply-chain costs and service, the real heavy lifting begins around all of the location-related factors to ensure long-term success. Specifically, this sector is highly dependent on not only the proximity to customers, ports, rail infrastructure, etc., but also on labor or talent. The best industrial space in the wrong location is costly, especially if quality labor at the right cost over a long-term period is not available.

The focus on supply chain and logistics means a ton of change for our industry: change in where companies locate, with how many facilities and what the mission of those facilities should be; change in how companies leverage big distribution centers to serve regions and small facilities for last mile or fast moving inventory locations to service stores; and change in how companies hold back inventory from the store shelves in order to reduce markdowns and then chase demand from a warehouse vs. filling stores with product that may not sell (therefore reducing markdowns).

Craig Engelhardt, managing director, national industrial services group, Savills Studley in New Jersey: Logistics is composed of warehousing, transportation, inventory management and customer service. The location, size and layout of warehouses are things that are continuously modeled and optimized by well-run companies as these considerations impact all aspects of logistics. What that means for the industrial real estate sector is that it is important to have property in the right location and of the right size and configuration (loading, ceiling height, basic shape) for the highest number of potential tenants.

In the US, logistics best practices are fairly mature. Logistics has been important for the last 25 years or more. The basics of a modern “spec” distribution building hasn't changed much in the last 20 years—36-ft. clear ceiling height, ESFR sprinklers, plenty of loading, trailer parking, etc. These basics may change a little on the periphery (perhaps 40-ft. clear will someday become the standard) and by market, but we don't foresee a sea change in the definition of a modern facility. What we have seen is significant redevelopment of older, functionally obsolete or manufacturing buildings to bring them up to modern standards—particularly in infill areas near major ports or cities.

Drew Hess, senior director, investment group, American Realty Advisors: The logistics sector appears to be getting more and more sophisticated as users focus on efficiency and prefer functional buildings in strategic macro and micro locations over those situated within traditional population centers. Tenants are willing to pay more for key attributes like loading, optimal column spacing, more clear height, and excess trailer parking that allow them to be more efficient turning trucks and speeding more product through the same sized warehouse. Loading, for example, involves more than just the number of dock doors available; the ratio relative to the warehouse, the depth from the docks to both the back wall of the building internally and the truck court depth for staging externally and the ideal spacing between doors for quicker access are all major factors to take into account. Investors are paying close attention to these details because they dictate the future leasing prospects for the building. State-of-the-art dimensions and specifications reduce the risk profile for a given asset, and core buyers are paying top dollar for well-located buildings with attributes that are critical for sophisticated logistics users.

GlobeSt.com: What are the sector's greatest challenges, in your opinion?

Mullen: Industrial space will continue to evolve to support greater degrees of automation or manufacturing capabilities, to ensure the access to the right amount of utilities and power and so on. There has to be a high degree of focus on energy and sustainability, a focus on how to create leverage around sourcing and procurement of critical commodities, infrastructure, etc. Also, tenants are much smarter on selecting the right location and will only get better at employing analytics to perform site selection—owners have to think the same way. Landlords need optics into how tenants make location decisions, where they should invest in industrial space and what type of user will leverage that space.

Hess: The greatest challenges are functional obsolescence, competing uses for land for future development and regulatory constraints. These challenges to the supply of logistics space also create the prospect for future rent growth for existing, high-quality, functional assets as well as for conversion opportunities for non-ideal buildings.

Andrew Mele, principal, Trammell Crow Co., East US: Perhaps more than any other sector, industrial is always vulnerable to a downturn in general economic conditions. However, outside of a severe recessionary environment, the greatest challenge in the near term will be for owners and developers to resist the temptation to make investment decisions based on availability of capital, as opposed to satisfying the requirements of logistics occupiers. This danger could manifest itself in two ways: 1. overbuilding in certain submarkets where capital and developable sites are readily available, and 2. development of buildings not compatible with user requirements. Unfortunately, we're already beginning to see signs of both issues cropping up in certain submarkets. Robust demand could save the day in this regard, but in the long run, those that develop with an investor's mind, at the expense of functionality for end users, will pay a heavy price.

Engelhardt: In the industrial real estate sector, the greatest challenge is the balance of supply and demand and the timing of construction. We saw an over-building of distribution space in the middle of the last decade just before the financial crisis. There were some large new buildings that sat vacant for five to seven years as a result.