Industrial Moving to Mega-DCs

SAN DIEGO-The supply-chain industry is dynamic, driven by customers becoming increasingly more demanding and the need to be as close as possible to the customer, said panelists at NAIOP's Development '13 conference here yesterday. These factors are leading to increased demand for “mega-DCs”—large, centrally located distribution centers rather than smaller localized warehouses.

The move toward these large centers could be a major development driver in the industrial sector, where many of these mega-DC's still need to be built, speakers said. When manufacturers consider site selection for their warehouses, cost is a major component. The logistics of managing several smaller warehouses within a region necessitates the transfer of goods among those buildings, which adds on labor and fuel costs, among other expenses, Jon DeCesare, CEO of WCL Consulting, pointed out.

So what's the limit on these mega-DC's, and how big could they get? Some experts say there is no limit, with some Walmart DCs reaching $2 million square feet, said Kim Snyder, president of the Southwest region at Prologis.

A key driver for mega-DCs has been, of course, e-commerce, which is projected to reach $327 billion and could grow to one-third of all sales by 2015, DeCesare commented. “Companies are becoming exceptionally good at taking orders.” The goal is to create omnichannels, where consumers can order from any channel—telephone, online, tablet, smartphone—and the intake and delivery are seamless. Amazon.com is setting the bar for this type of service, and other large retailers are following. The question manufacturers are constantly asking themselves is, “How can we model the big guys like Amazon and still make money?” said DeCesare.

In addition to size, some of the top site-selection elements for distribution centers are sales and tax incentives, workable quality and proximity to UPS and FedEx. Other considerations are fuel and labor costs, as well as whether the location is close to a labor pool that can work 24/7.

Warehouses aside, the industrial sector is also considering different modes of transporting goods into and around the country, including via the ports, rail and trucking. Infrastructure changes in these areas--such as the Panama Canal situation enabling larger ships to enter ports, and more investment in the rail system—have the potential to impact the sector greatly in the coming years.

As GlobeSt.com reported earlier today, big-box space requirements, both on a square-footage basis and on a number-of-requests basis, are growing throughout the country, and e-commerce remains a heavy and growing demand driver for that space, Jones Lang LaSalle reported exclusively to GlobeSt.com. While overall demand is up, demand in the most active big-box market, the Inland Empire—which accounts for 18% of the nation's speculative construction—is flat, and JLL's research points to the push for this type of space shifting eastward.