The growth of e-commerce has placed new demands on North American supply chains and is contributing to an ongoing evolution in industrial real estate. As Mike McCrary, managing director with JLL, noted in his opening comments at “Inside the Box: Industrial Tenant Technology,” a panel discussion at CRE.Converge 2019 in Los Angeles, e-commerce distribution and fulfillment centers have become the central nodes in contemporary supply chains and need to be able to store and move ever-growing volumes of goods. Commercial real estate developers, architects and warehouse operators are responding to increasing demand for capacity by investing in new building formats and advanced logistics equipment.
McCrary observed that tenants understand and appreciate the value that newer facilities can add to their operations. They are also increasingly investing in artificial intelligence, advanced warehouse management systems and robotics to improve facilities’ throughput. McCrary noted that demand for advanced logistics technologies has reached the point where investments in equipment within a building can exceed the value of the real estate itself. Bill Baumgardner, executive vice president for development at VanTrust Real Estate, concurred, noting a recent example where a tenant invested $70 million in internal improvements in an $80 million building despite only having a five-year lease.
Blake Bearden, regional director for Bastian Solutions, offered a preview of advanced logistics technologies that his firm is currently evaluating. Many of the more promising technologies report data from internet of things (IoT) devices to a warehouse management system. For example, Bastian Solutions is interested in IoT devices that allow for tracking pallets in real time, revealing where a pallet is dropped and who dropped it. Similar devices can also report when a pallet has exceeded a sensitive temperature range. IoT-equipped machinery such as loaders can also signal when they are approaching failure so that operators can have spare equipment on hand at the right time. Finally, Bastian Solutions is investigating logistics equipment that is adapted to smaller spaces, such as storage areas that are carved out within a retail footprint to facilitate omnichannel distribution.
Increasing demands are also being placed on warehouse architecture. Yong Nam, president of HPA, Inc., observed that where there was limited demand for warehouses with high clear-height ceilings 20 years ago; 36-foot clear buildings began to displace smaller buildings prior to the 2008-2009 recession. It is increasingly common to find 40-foot clear buildings and Nam expects that many developers may begin to opt for 42-foot clear buildings in the near future.
Nam observed that higher clear heights have also affected other elements of warehouse design. For example, higher ceilings are contributing to increased demand for very flat floors. Sloped floors are relatively common in warehouses in the Western United States, and can be a cost-effective way to address drainage. However, the very narrow aisle equipment that is used in buildings with higher clear heights requires that floors be very flat for safe operation.
Higher clear heights and the larger racking systems they accommodate also require a more resilient floor slab. However, there is some debate within the development community about the best floor slab composition and thickness. Bearden indicated that Bastian Solutions has used Ductilcrete to achieve a needed tolerance with relatively few joints in the floor slab, and that it required less time to pour the slab. However, Baumberger noted that he has encountered instances where a contractor was not able to get the Ductilcrete mixture right and the floor slab subsequently had to be torn out. While Ductilcrete can be helpful in special uses, Baumberger said that in most cases a seven-to-eight-inch unreinforced concrete slab is a better option. Nam noted that HPA most often uses an unreinforced slab, and that proper joint spacing can provide a slab with the integrity it needs to support heavier loads.
Panelists also found that roofs are facing increasing demands. Nam said that fulfillment centers are labor intensive and that an HVAC system can be an important feature to recruit and retain workers. For this reason, HPA will often design a roof that can support an HVAC system, even for a fulfillment center built on spec. Stronger roofs also have the potential to support solar panels in the future.
Warehouses also increasingly need infrastructure that can support HVAC systems and advanced equipment. Panelists observed that warehouses have required more and more electrical power to operate, and that these needs will only increase in the future with new equipment or with the installation of electric vehicle charging stations. Increasing energy efficiency will be important to manage costs and electric power requirements. Furthermore, it is likely that states and municipalities will increasingly require that new buildings be more energy efficient. Baumberger also observed that buildings need to have fiber optic cable installed to support advanced logistics equipment, but that developers should be aware that fiber optic providers are not always easy to work with.
As NAIOP Research Director, Shawn Moura manages the NAIOP Research Foundation research committee and day-to-day operations of the Foundation’s research projects.