Is Ecommerce Really Responsible for the Industrial Boom?

Ecommerce gets all the credit, but it might not be solely responsible for the industrial boom this cycle, according to experts at RealShare Southern California. On the Industrial Outlook panel—moderated by Jenny Redlin, a principal at Partner Engineering and Science with speakers Brandon Birtcher, CEO of Birtcher Development LLC; Ryan Grove, director of real estate development at Ryan Companies US; and Tim O’Rourke, managing director at JLL—said that changes to the supply chain, which requires that goods be closer to the consumer, is largely responsible for the industrial activity this cycle.

Birtcher said that these changes to the supply chain include changes in the trucking industry and the shortage of drivers, the need for new bridging in railroads and ports that can accommodate mega ships. While he says that ecommerce is one driver, he says that these changes to the supply chain have created a need for goods to be closer to consumers today. This means, for example, that a market like Phoenix can’t service Southern California anymore. “We have a need to put goods close to people,” he said on the panel. “It is the supply chain that really drove this activity.”

While Birtcher says that the supply chain has been largely responsible for the industrial activity, O’Rourke says that ecommerce demand is strong and has shifted the industrial market to be more population focused. Additionally, there is still strong manufacturing demand in Southern California. “Even though manufacturing has been on its way out for 25 years, we still have more than any other MSA in the country,” he said.

Whatever is driving the activity, there is ample activity. In San Diego, which is not a major industrial market for ecommerce distribution centers, is seeing record lease rates. “A big driver in our market has been on the ecommerce and delivery side,” said Grove. “We have seen a big trend where they come in and service the last mile. That is really the push in our market.” As a result of this activity, there is an extreme supply shortage, and that is a trend that has become true throughout California.

Construction of new industrial product, however, is challenging. A lack of land is a major issue, but development costs have also made construction more challenging and expensive. “Land is at an inflection point,” said Birtcher. “We can’t keep bidding up the cost of dirt and brokers should not be encouraging that.” Grove adds that materials costs are increasing significantly as well. “We have seen an increase in 15% for steel, especially metal drywall studs,” he said. “Sheet metal has gone up 5% to 7%.” In San Diego, smaller box industrial has been the most popular, and that has been true in Los Angeles and Orange County. The Inland Empire, on the other hand, has seen more activity for large box spaces.