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ORLANDO-National retailing majors are discovering metro Orlando as a campus for mega-sized distribution centers previously reserved for larger industrial real estate markets.

As an example, local brokers cite the search in the local market for a 150-acre-plus site by Lowe’s Cos. Inc. of Wilkesboro, NC, the nation’s second largest home improvement retailer; and Wal-Mart Stores Inc. of Bentonville, AR, the country’s largest retailer.

Both retailers plan to build one million-sf to two million-sf distribution centers, consolidating smaller centers elsewhere in the region. The estimated hard construction costs of the projects are $35 million to $70 million.

K-mart currently operates the largest distribution center in Central Florida in Ocala, FL, 80 miles northwest of Downtown Orlando. The two-million-sf center originally began as a 1.5 million-sf property 10 years ago.

“Mega centers is not a coming trend,” George D. Livingston, founder/chairman, Realvest Partners Inc., Maitland, FL, tells GlobeSt.com. “They are a fact.”

Livingston says that if Lowes or Wal-Mart, or both retailers build jumbo distribution centers in Central Florida, “it will change the (national) site selectors’ impression of Orlando” altogether. “Given our roads, rail and air infrastructure, we should have been a (major) big-box center all along.”

He says “if we get them, more are likely to come, like lemmings.”

The developer says there is “a clear move for a consolidation by national distributors into larger but fewer distribution centers.” The average size being considered is one million sf.

“My guess is that there will be less demand for the smaller, and especially older versions by the large nationals,” Livingston says.

Many of the newer facilities will be seven-day, 24-hour operations and will need extra truck and trailer parking, and broadband hookups. “Worker availability may be the key decider” on a manufacturer building or not building a mega distribution center, Livingston says.

Land cost is less important as a deciding factor but sites of 150 acres will be required for a one million-sf-plus center “and they are in short supply in many cases,” the developer says.

Livingston estimates hard construction costs could be $35 per sf or less on the jumbo projects. Material-handling equipment would run up the development cost.

“Speed to handle” merchandise is the primary concern in doing one million-sf-plus properties, the developer says. “Logistics receives high attention. Real estate is only one component.”

While Livingston is confident big distribution centers will be surfacing regularly in most major markets shortly, he also sees a place for the 100,000-sf or smaller distribution centers in a manufacturer’s storage and delivery strategy. “These smaller centers will be designed for high throughput,” the developer says. “Maybe cross dock.” Speed and inventory control will be other factors deciding the size of the property.

Ron Smith, vice president, Edwards Construction Services Inc., Orlando agrees with Livingston that logistics, not construction costs alone, will play a key role in determining the size of the new generation of distribution centers.

The trend to mega distribution centers in some major markets is “all about logistics,” Smith tells GlobeSt.com. As an example, he cites Baxter Health Care of Deerfield, IL. The company was considering abandoning all of its smaller distribution facilities (100,000 sf to 300,000 sf) and replacing them with mega centers.

“It never happened,” says Smith. “I imagine they determined the total hard and soft cost of vacating the existing facilities, combined with the cost of the new distribution center, just did not make economic sense when compared to the possible savings in efficiencies for having fewer but larger facilities.”

Smith’s firm built the 1.5 million-sf Kmart distribution center in Ocala, FL which has been expanded to two million sf, the largest retail complex of its kind in Central Florida and one of the largest in the state. Edwards also built a 500,000-sf storage hub for Winn-Dixie Stores Inc. in Sarasota, FL and a 400,000-sf center for Sherwin Williams Paint Co. in Winter Haven, FL.

Cost alone is not the determining factor in planning a small, medium or super-sized distribution center, Smith says.

“Cost of transportation, rent or cost of construction and land; the ability to get inventory to stores or distributors in a timely fashion are all issues that manufacturers and retailers deal with regularly when deciding where and how large to locate a distribution facility,” the Edwards executive tells GlobeSt.com.

The solution comes down to “what is the best, most cost-effective way to accomplish this feat,” Smith says. “More than trends, what affects the size and location of distribution centers is truly the logistics of distribution product.”

Smith cites the current search for a mega distribution center sites by Lowes and Wal-Mart and the ground-breaking by Atlanta-based Home Depot Inc. of a 129,000-sf transfer distribution center near Clermont, FL.

“Here you have two competing home improvement companies that are similar in many ways, yet are obviously looking at how they product to stores quite differently,” the Edwards vice president tells GlobeSt.com.

Smith conceded larger centers will always cost less to build than smaller properties but that factor “has always held true in any type of construction,” he points out.

“The larger the facility, the lower your sf price will be,” Smith says. “However, the sf cost difference between a one million-sf facility and a 300,000-sf project alone would not be enough for someone to decide to change their entire way of distributing product.”

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