Location always has been, and likely always will be, the primary determinant when a company expands their operations and builds a new property. But there are other factors at play, especially when it comes to build-to-suit industrial assets.
One top priority that has emerged of late is speed to market. Especially among e-commerce firms, every moment that a patch of dirt is not operational is lost revenue, so getting a facility up and running is so important.
Late last year, Amazon opened a 145,000-square-foot delivery station in Chicago’s Pullman neighborhood. Ryan Companies served as the master developer for the 62-acre Pullman Crossings industrial park, in collaboration with community developer Chicago Neighborhood Initiatives. As proof of how important speed-to-market has become, the whole process of bringing Amazon to the historic neighborhood only took eight months.
“These kinds of users want to get to market as quickly as possible and start getting products out to their customers,” said Kyle Schott, director of real estate development, Ryan Companies. “National clients are becoming somewhat programmatic in what they’re looking for in terms of real estate solutions.”
According to Schott, industrial users with a broader scope want advisors that can navigate all aspects of the real estate lifecycle. This can include processes such as site selection, entitlements, capital, design, construction and property management.
There are other requirements for industrial users that are changing somewhat, including a push for increased amenities within these buildings’ office spaces. Because labor availability is so important to these companies, it’s important to include areas that not only can accommodate employees, but also make them feel comfortable and welcomed.
Warehouse “break rooms” used to be a percolator atop a card table in some disused corner of the facility. Modern breakout spaces are now much roomier and not dissimilar from what goes into new office buildings, allowing employees the space to build camaraderie and have a little bit of social time. Schott has also seen more diverse amenities such as prayer rooms installed in these properties.
Early on during the pandemic, many companies were caught off guard as their “just-in-time” inventory model fell apart in the face of unprecedented demand. Because of this, many firms are no longer keeping 15 or 30 days of stock in supply but upping that to 60-day inventories. This, of course, is having an impact on the built space.
Industrial warehouses were already getting bigger and taller before last year, but COVID-19 exacerbated this trend. Clear heights are growing not just to accommodate larger inventories, but also as the industry shifts more toward robotic pickers that can go 40 feet and higher. The growth of product inventories is also directing industrial users to consider the redevelopment of Class B product for additional storage space.
“I think that the industrial market is going to continue to thrive off of the strong 2020 that we’ve already seen. And there are going to be other user demands—not just e-commerce—including retailers, wholesalers, as well as third party logistics,” said Schott. “The near future is going to be all about managing condensed schedules, changing user building requirements and creative land positions.”
Shifting cold storage needs may attract spec developers who in the past were more reticent to get into this costlier product type. As a result, cold storage users may not be restricted to build-to-suit or second-generation facilities as they have been in the past. That said, it’s not just the higher capital outlay that keeps developers from building spec cold storage, it’s the unique needs for each user.
Schott said that there has been growing flexibility in this space over the past few years. Modular cold storage areas are growing in size and temperature ranges—providing the ability for end users to alter their cold storage strategy over time. It’s likely that we will see this evolving technology deployed in both spec and build-to-suit facilities.
There is a lot of flux currently in the supply chain as all types of users—manufacturing and e-commerce and everything in between—pivot in reaction to new realities. These changes are going to continue to alter design needs and ultimately, our stock of new industrial facilities.