Why Industrial Strength is the Real Story Behind E-Commerce
Technological innovation has led to industrial transformation and a renewed race for space.
“Industrial design-build and spec development is at an all-time high throughout the country,” Mark Duclos said.
WASHINGTON, DC—The e-commerce effect on retail business may still get most of the headlines, but commercial real estate pros recognize the impressive impact on its behind-the-scenes counterpart. GlobeSt.com spoke to Mark Duclos, president-elect of the SIOR board of directors and president of Sentry Commercial, a Hartford, CT-based real estate advisory firm, to discuss industrial real estate strength and dynamics, from supply chains and site selection to labor pools and data centers.
“E-commerce has redefined logistics,” said the 30-year CRE veteran and past president of SIOR’s Connecticut chapter. “There’s been a huge impact on supply chains and logistics as it relates to air, ocean, trucking, rail and intermodal facilities. There’s really been a whole A to Z effect certainly on real estate, but also the modes of transportation and how product is delivered.”
Duclos noted that the overall national industrial vacancy rate last year was 4.3 percent, the lowest ever recorded. Meanwhile, rents rose 7.4 percent. Investment volumes also confirm the momentum. According to Duclos, there has been a 29 percent average annual investment increase in industrial real estate in the past five years versus only 1 percent average annually for the preceding 20 years.
“Industrial design-build and spec development is at an all-time high throughout the country,” he added. “There’s literally no long-term over-supply. There are a number of markets where vacancy is less than 2 percent, but typically you have a lot of supply in the pipeline in those markets, albeit not enough to keep up with demand.”
E-commerce site selection, including “last-mile” deployment, is really about proximity to the customer base, highway access, quality of real estate and labor pool. According to Duclos, “The first four are most critical by far. The cost of real estate, while certainly important, is fifth or sixth down on the priority list.”
Product needs have generally been high-bay, cross-dock facilities, but with last-mile delivery a priority, Class B space has moved up on investor radars. The demand within the sector, coupled with the general race for space in and around population centers, has spurred alternative site selection trends. To be near their customer base, e-commerce firms are increasingly looking to adaptive reuse and multi-story facilities.
Developers have had to change how they design spec facilities, and not just tweaking height and depth. How developers account for trucks at fulfillment centers is a major change.
The dynamic e-commerce drivers are such that entire asset classes have been transformed. Cold-storage space is actually becoming a market in of itself because of online grocers, said Duclos. And data centers are taking more of an edge computing approach, shifting total reliance on distant mega-facilities to more local and nimble sites.
E-commerce has been nothing short of a revolution, electrifying industrial investors while reshaping facilities, supply channels, site selection and more. One thing’s for sure: this isn’t your father’s industrial real estate sector.