With major distributing companies today like Amazon, there seems to be a focus on being as close to their customers as possible. According to Daniel Smolensky, SIOR, Principal, at The Modal Group, this trend the industry is seeing, isn’t anything new.
“I think in many ways it’s a trend that lost some attention,” Smolensky said. “But that just seems to be where my clients are. I do a lot of work in Chicago, and plenty of work outside of it nationally. I have clients who are distributing everything from catalog products to motors to furniture.”
“Their customers, referring to my clients, could be the end users like you and me,” he continued. “Some companies are also “the final mile” where they deliver to a house or business, UPS and FedEx would be examples of that.”
He added, “Other companies, most likely manufacturers and 3PLS, deliver to others warehouses so they can get the products in the consumer’s hands. An example would be Sony, where they deliver their goods to Best Buy’s warehouse, for example, and Best Buy gets it to the customer. So they want their facility to be in the middle of that.”
Smolensky said that’s important to companies because when they go further from their customer base, their transportation costs go up.
“Being closer to their customer base equals lower transportation costs,” he said. “That is the overwhelming trend that I’m seeing with our customers.”
With respect to the real estate, and what they want, Smolensky noted that things are changing. “ESFR Sprinklers are as high of a priority that I have ever seen them. I think it just provides more flexibility with how they can store their goods.”
Early Suppression Fast Response (ESFR), according to Smolensky, is essentially a high volume, high pressure, sprinkler head. It’s also what he considers the gold standard of sprinklers in a warehouse.
“Basically, if you have a building that does not have ESFR sprinklers, depending on what the product is—and how a warehouse is racked—the fire Marshall of a city may require installing in-rack sprinklers to provide enough water in the event of a fire. In-rack usually is very expensive, $1.00-2.00 per square foot, and may impact flexibility of moving the racks at a later date because of the additional sprinkler costs. More often than not, if the building is equipped with an ESFR sprinkler system, it is sufficient, but of course not always.”
Another trend Smolensky’s seeing is with companies wanting more docks. “The industry standard has been one dock per 10,000 square feet. We’re seeing that companies want three or four docks per 10,000 square feet. That also requires a building that is more rectangular than square. So there are more docks and cross-dock facilities in demand.”
As for the developer, Smolensky said, “They may not build a cross-docked building, despite the operational efficiencies that users like about a cross-docked design. A cross-docked-building generally requires a developer to not max out the building size on a land site. That typically translates into lower gross rent. I would argue that it would also translate into less down-time, nullifying any lost NOI.”
“But I think it’s a building that would potentially be in more demand, and would typically garner a higher lease rate,” he added. “I’m not saying it’s a fact. I’m just saying I think it’s something that would be desirable for a certain company that just wants cross-docks. I don’t know what the ratio of buildings is that are cross-dock, but I would guess it’s less than 15 percent of the buildings out there.”
From a lighting standpoint, Smolensky said, companies expect their buildings to have energy efficient lighting. “The way the industry is referring to energy efficient lighting right now, is with the T-5 or T-8 lamps. Not only are they energy efficient, but they typically give off better light.”
The industry standard for lighting since the 1970s, maybe even the 1960s according to Smolensky, was a light called metal- halide.
“It was the kind of light you’d turn on and hear some kind of buzzing when it was warming up,” he said. “Think of your grade school gymnasium. Some of those still use those lights. But that lighting is very inefficient from an energy standpoint, and also inefficient from a general lighting standpoint.”
“Let’s just say you need the lights on in your building,” he added. “So you hit the switch, and the lights are warming up. It could take several minutes for the warehouse to light up. So that’s just one issue besides the fact, that the bulbs are also very expensive, and apparently those bulbs are not being manufactured anymore.”
LED lighting is also becoming very popular. “I don’t have a lot of experience with it,” Smolensky said. “I was in a building last week, and I noticed the metal-halide lights. I asked if they were getting T-5 or T-8 lights. They told me no, and that they were thinking about doing LED. So there’s a new trend as well.”
