Some sectors and industries are realizing opportunities and facing challenges resulting from the global disruption caused by the COVID-19 pandemic. In a session at NAIOP’s I.CON Virtual 2020 this week, speakers discussed successful industrial investment and lease decision-making, taking into account a multitude of factors.
Bethany Clark, senior managing director, logistics & industrial services – Americas, Cushman & Wakefield, led the discussion.
Other speakers included Tray Anderson, logistics & industrial services lead – Americas, Cushman & Wakefield; Kevin Dollhopf, vice president, global real estate & security, HanesBrands Inc.; Bryan Jensen, chairman and executive vice president, St. Onge Company; and Taylor Malfitano, vice president, National Accounts, Link Industrial Properties.
“More than ever, real estate has to be connected to the needs of the business,” said Dollhopf, who is behind the real estate strategy for Hanes, which operates in 45 countries with 25 million square feet of supply chain space. “We spend most of our time trying to figure out how the consumer will transform next,” he said.
All panelists agreed it’s critical to consider the behaviors of consumers, listen to occupiers and understand what’s driving their decisions around renewing leases or expanding for an effective supply chain strategy. The speakers landed on a few key themes that have emerged in the face of the pandemic.
Redundancy and Resiliency
Managing risk, in the form of increasing supply chain redundancy and resiliency, was a major topic of discussion.
“If a company was only bringing their goods in through the Port of Long Beach, they might now decide to diversify, and that will have an impact on their warehouse network and how they distribute goods,” said Malfitano.
Resiliency and redundancy in the supply chain have always been important, now more than ever. What do resiliency and redundancy look like currently, and how do you set up your supply chain in the event that a major disruptive event happens again?
All speakers also agreed that they foresee an increase in reshoring and onshoring. “The preliminary conversations we’re having with clients about moving manufacturing into the U.S. is happening across all product types,” said Anderson.
Dollhopf also pointed out that globalization may be a waning trend – countries are becoming more protectionist, tariffs are increasing. “There will be some significant onshoring so companies can ensure a supply to their customer base,” he added.
Malfitano said he doesn’t see major trade routes changing, or companies exiting major players like China completely, but rather diversifying.
Another buzzword among the group was flexibility. Six weeks ago, Hanes did not have a PPE business. Now the company expects to make over 1 billion protective face masks by the end of 2020.
“We’ve adjusted our entire supply chain in the face of COVID,” Dollhopf said.
Now the issues the company faces from a supply chain standpoint are: What will happen to that new business unit? Will demand peak and stop? The answers to these questions all have tremendous implications for the supply chain and where to make capital investments.
Pre- and post-COVID-19, ROI is always key – but where that ROI is sourced has changed over time. “We’re hearing more about the right mix of CapEx and flexibility – the ability to ramp up when needed and scale back down,” Jensen said.
“Cost is always going to be an important driver but [occupiers] are also looking at the big picture – the long-term horizon, operations costs, and the ability to shift quickly, as they’ve had to this year,” said Anderson.
“Real estate is typically a long-term play, but businesses want more and more flexibility,” agreed Dollhopf.
Labor and Automation
“If you had asked me in March, I would have said the need for labor analytics will go down,” said Anderson. But now Cushman & Wakefield’s labor analytics group is working around the clock.
Some thought the amount of available labor would increase due to the increase in the unemployment rate, but all agreed they weren’t seeing that. It might be because the available jobs aren’t desirable to the average American worker. The government support and unemployment payments may have prevented some workers from feeling the pressure to race out to get a job, too.
“Availability of labor and cost of labor are still very much questions and we’re working to solve them with the same level of rigor that we were in February,” said Anderson.
And while automation is often cited a potential solution or stopgap for a labor shortage, Jensen talked about some automation being more effective in a complimentary role – “automation as assistant” – in the form of Automated Guided Vehicles (AGVs), for example.
“When you bring in robots vs. labor, it comes down to which is most effective for distributing your product while still being cost-effective,” he added. “I think the picking robots aren’t there yet – you still need people to look, see the product and make decisions.”
Regardless of the way the COVID-19 crisis continues to unfold, it’s likely that all industrial space users and investors will be approaching their supply chain decisions differently moving forward.