Industrial Developers in a Sweet Spot

CHICAGO—E-commerce and its likely impacts on the industry was on the minds of many at BMO Capital Markets' 10th Annual North American Real Estate Conference, held Monday and yesterday in Chicago. But the overall mood was one of optimism. As reported in GlobeSt.com, even bricks-and-mortar retailers were upbeat, saying that the ability to buy products online was, besides convenient, another way for consumers and outlet stores to connect. And industrial developers were also buoyant about the possibilities provided by e-commerce.

Speaking at a Monday afternoon session on the future of warehousing and about some of his company's latest projects, Marshall Loeb, president and chief operating officer of EastGroup Properties said “almost every tenant has some component of e-commerce in their space.” And the need for distribution facilities should continue to grow, as companies like Amazon are going to complement their massive distribution centers with smaller fulfillment facilities located closer and closer to urban cores to handle those last few miles of delivery.

E-commerce “is really an add-on to the marketplace,” said James Connor, senior vice president and chief operating officer of Duke Realty, since many retailers now need fulfillment centers. Furthermore, fulfillment centers are unlike traditional warehouses and function more like FedEx or UPSfacilities, with high stacks made up of all different kinds of goods headed out to thousands of individual customers, so satisfying this demand will require a lot of new specialized development.

Connor also wanted to correct a common misperception that these types of facilities are usually plunked down on the outskirts of metro areas. In addition to the need to be near their urban customer base, those operating fulfillment centers have to be able to recruit workers. “You can't put it in the middle of a cornfield and get 3,000 people to work there,” he said. Operators will want to be near the urban core, and “they are willing to pay the price.”

Another advantage for landlords is that running one of these facilities is such an intricate job that tenants usually organize and build the interiors themselves to exact specifications. “When you see a tenant put that amount of investment in,” said Kevan Gorrie, president and chief executive officer of Pure Industrial Real Estate Trust, “it makes you feel good.”

Connor also seemed to be feeling good when he discussed the overall climate for the entire industrial sector. He pointed out at the session's end that rents are on the upswing, new development has increased and occupancy and absorption remain high. Industrial owners and developers “are in a sweet spot. I've been in doing this a long time, and it doesn't get any better than this.”