By any measure, industrial real estate continues to lead all other product types, and the conversation regarding its competitive strengths, coming challenges and seemingly unending growth was center stage at NAIOP’s I.CON West, held June 6-7, in Long Beach, California.
I.CON is the nation’s largest gathering of industrial real estate professionals, where industry leaders exchange the latest big ideas, trends and new technologies impacting the logistics sector. This year’s conference in Long Beach featured tours and panels covering topics ranging from retail-to industrial redevelopment projects to the shifting omnichannel distribution landscape.
These takeaways are the ones I shared with the team at JLL:
Regulatory challenges and solutions: The discussion focused on the regulatory environment at the federal level and in the state of California, but the expression “as California goes, so goes the nation” echoed throughout the day.
- The California Environmental Quality Act (CEQA) continues to be used as a weapon against developers in California. Project timelines are being significantly altered, and many developers are forced to settle immediately.
- On the federal level, the “Waters of the United States” (WOTUS) definition proposed by the Army Corps of Engineers is expected to be rolled back. The definition of “wetlands” under the Clean Water Act was amorphous. The Obama administration expanded connective protections under the Clean Water Act to extend up to 4,000 feet from wetlands. The Trump administration rollbacks would redefine the rule of “adjacent” as directly adjacent. New regulations are expected to be issued later this year; however, expect more litigation.
- While local governments all desire the investment and jobs that come with industrial development, they are often left feeling like the middlemen, caught between the federal government and the business community; local officials are tasked with enforcing federal regulations, which affects their relationship with the business community and their competitive edge in attracting new business to their cities.
- The commercial real estate development business has really changed during the current cycle, with more emphasis placed on community outreach and building relationships with local government staff. It has become more important than ever in getting projects across the finish line.
- City officials in impoverished regions of the country are welcoming the jobs generated by new warehouses. For example, Walmart.com creates 1,000 jobs per shift. Selling these benefits to local communities is vital to a project’s success.
Omnichannel distribution: Consumers are increasingly showing a preference for multiple retail channel shopping, and the average multichannel shopper is worth four times as much as the single-channel buyer. Retailers are striving for the seamless, omnichannel shopping experience.
- Walmart online order/in-store pickup sales totaled $1.0 million per week in 2016. That figure ballooned to $100.0 million in 2019. In many suburban markets, shoppers prefer swinging by the store for a pickup rather than waiting at home for a delivery.
- Supply chain speed and efficiency are more important than ever. Transportation typically accounts for 70 percent of the total cost for a logistics company, and this share is increasing with the rise of multichannel distribution networks.
- Retailers put a lot of emphasis on monitoring social media and utilize “influencers” extensively.
- The reverse logistics conundrum will continue to be challenging, but multiple solutions show promise. Many e-commerce companies are increasingly partnering with physical retailers. The arrangement is a win-win for brick-and-mortar businesses who are paid to take back goods and are also getting customers in their doors.
- Expect the Amazon locker concept to gain traction. Many customers don’t want to interact with sales representatives and the lockers also help mitigate long checkout lines.
- The asset-sharing model is on the rise. Amazon created the free delivery expectation among consumers, which competitors are struggling to keep up with; Walmart.com customers will not buy a product with a delivery fee but are willing to pay a third-party delivery service.
Retail to industrial: Location has always been paramount in the real estate business. But throughout the day, location was underscored as being even more crucial post-recession. Infill development is on the rise, and the locational advantage of shopping mall–warehouse conversions typically gives distribution centers great freeway access near concentrated population centers. The two case studies – Randall Park Mall redevelopment in North Randall, Ohio, and the Optimus Logistics Center (in which JLL’s Inland Empire team was a key player) in Perris, California – both emphasized strategies that came up frequently at this conference.
- Location is paramount above any other criteria.
- Collaborative efforts among the development team and with local city officials are crucial.
- The discussion with local planning agencies of rezoning retail to industrial is often a difficult one. Warehouse job generation is a powerful argument and is often the linchpin in advancing that conversation. For example, when Wayfair expanded its operations in Perris Valley, it became the second-largest employer in the valley.
Technology: Successful omnichannel distribution networks will need to find the “sweet spot” between labor and technology. Warehouses will always require a base volume of human labor, but robots are now handling more of the monotonous activities. In general, technology was acknowledged as a disruptor in the industry, but the consensus was that massive, industry-shaking advances would not occur in the immediate future.
- Opting to rely more heavily on warehouse automation is also a social decision. Killing jobs with automation can result in killing your public image as well.
- Fully autonomous trucking is on the horizon, but distantly. Driver-assisted technology and automated moving within yards are already here. But safety advocacy groups will prevent fully autonomous trucks from taking the road for at least 10 years.
John Sheaffer is senior research analyst for the Greater Los Angeles area at JLL.