Industrial Trends Play Out as Predicted

CHICAGO—Whether their tool was a crystal ball or market knowledge, professionals in both commercial real estate and supply-chain management did pretty well at forecasting trends affecting the industrial market as the recovery began to take hold. So says a report from Cushman & Wakefield's industrial services team, which found that out of seven predictions made a few years ago, five have played out as expected while the jury is still out on the other two.

“As the US economy started to creep down the road to recovery, fundamental shifts in retail shopping patterns and manufacturing strategies were beginning to manifest themselves in the industrial landscape,” says John Morris, Americas leader for C&W's industrial services platform. “A variety of industry watchers and media outlets contributed to the buzz, and we made our own predictions about which trends would likely bring wide-reaching, lasting changes and which were likely to be short-term blips.”

The first of those predictions has proven to be on the money: “E-commerce growth will outpace growth in overall retail sales, causing fundamental shifts in order fulfillment strategies and models.” C&W notes that there's no sign of a slowdown in the growth of the online sales channel as a percentage of retail. “The new retail ecosystem will require more warehouses, many of them highly specialized, different methods for the delivery of purchases and new hybrid fulfillment center formats,” says Morris.

Accordingly, C&W's prediction that distribution centers would be located closer to major cities also has been borne out. “As delivery evolves from two-to-three-day models to one-day and same-day delivery, facilities are frequently being clustered closer to population centers,” Morris observes. As same-day delivery becomes more prevalent, it's also spurring infill development of DCs around smaller cities.

DCs were also expected to grow bigger in the recovery, and that has indeed been the case. The average US warehouse/distribution facility is 42% larger than its 2000 counterpart, while mega-DCs of one million square feet or greater are becoming more common. 

Along with reaching greater size, DCs were also expected to reach greater heights, and this has occurred. “As warehouse distribution buildings have been expanding out, their ceilings have been going up,” says Morris. In the Inland Empire, for instance, five new speculative projects feature 36' clearance, while some 7.2 million square feet of spec development going up in the Dallas/Fort Worth market offer clear heights greater than 36'.

As to the prediction that demand for large, modern warehouse space will outweigh supply in primary hubs, pushing activity into secondary markets, it's still a matter of waiting and seeing. However, the day that this prediction comes true may not be far off.“Companies seeking good highway access, proximity to intermodal or ports and strong labor are finding it increasingly difficult to secure sites that meet these criteria,” says Morris.

On steadier ground is the prediction that rising construction costs, decreasing labor supply and growing product demand could present challenges to progress, both for developers and end-users. In the New York/New Jersey area, for instance, costs have risen by an average 10% over the past year, while smaller markets have seen somewhat shallower increases. “These escalations are mainly due to rising labor costs—up 2.8% in the past year--and land constraints in the face of strong demand,” says Morris. “Overall development costs will likely continue moving up.”

Meanwhile, the jury is still out on the prediction that reshoring will bring more jobs, capital investment and demand for industrial space back to the US. However, that jury is getting closer to a verdict. Morris observes, “While the debate about how much reshoring is actually taking place continues, there is no doubt it is happening, and companies are at the very least examining their options more closely.”