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Building Supply Chain Resilience into Industrial Development

Originally published on June 6, 2024, by Natalie Fidlow, CFA for NAIOP.

When a catastrophe hits an area, nearly one-third of local businesses fail within two years; another third fail after that.

Moderator Anne Strauss-Wieder, freight and public policy instructor at Rutger’s University, opened an expert panel discussion on why businesses and communities need supply chain resilience at the I.CON East conference this week in Jersey City, New Jersey. Fortifying the supply chain is essential to secure the long-term viability of a business and its surrounding community. Disruptions over the past few years like the COVID-19 pandemic, natural disasters, and cyberattacks have underscored the vulnerability of supply chains and the need for robust strategies to mitigate risks.

How should we approach disruption?

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Industrial Space Demand Forecast, First Quarter 2024

Originally published on March 2024 by Hany Guirguis, Ph.D., Manhattan College and Joshua Harris, Ph.D., Fordham University for NAIOP.

With the U.S. economy expected to continue to grow slowly, the authors estimate that quarterly net absorption of industrial space will average 14.0 million square feet per quarter over the next two years, or 62.8 and 49.1 million square feet in 2024 and 2025, respectively. This forecast represents a relative “cooling” trend following what had been a protracted period of above-average industrial absorption following COVID-era demand shifts that accelerated the need for distribution space to meet consumers’ increased preference for home delivery. As such, the projected slowdown in net absorption reflects more of a “return to normal” than a negative outlook for occupiers of industrial real estate.

The Industrial Market

After two years of absorption that significantly exceeded long-term averages, industrial net absorption in 2023 totaled just 93.7 million square feet compared with a record high of 486.6 million square feet of completions. While such a supply and demand imbalance is usually a cause for concern, the effect has been to bring balance back to an industrial market that had been substantially undersupplied since 2020.

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Industrial Outdoor Storage: Tips for Making these Unique Sites Succeed

Originally published on March 13, 2024, by Kathryn Hamilton, CAE for NAIOP.

Primarily used for the storage of trucks, trailers, containers, large equipment and materials, industrial outdoor storage (IOS) is a unique property type that comes with its share of challenges. A panel of IOS experts took the stage at I.CON West this week in Long Beach, California, to walk attendees through the pressures of this industrial-zoned land and why it’s important to an overall logistics portfolio. 

Moderated by Matthew Goelzer, AIA, LEED AP, principal with MG2, panelists included Jennifer Hall, partner, LIDD Consultants Inc.; James Hooks, senior vice president, CBRE; Michael Landsburg, chief development officer, NFI Real Estate; and Richard Weiss, senior vice president, Dalfen Industrial. 

Here are takeaways from their conversation: 

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Evolving Sustainability Regulations in Industrial CRE

Originally published on March 13, 2024, by Jennifer Lefurgy, Ph.D., for NAIOP.

Understanding the ever-evolving regulations and reporting requirements around ESG can be challenging. A panel of industry experts spoke to I.CON West attendees on why these regulations are about more than compliance. They can lead to market differentiation, improved communication with tenants, and interest from global investors. 

Moderator Megan Krest, associate director of ESG at Cushman & Wakefield, asked the panelists about their work in California involving reporting and compliance. Ethan Gilbert, director of global ESG at Prologis, discussed AB 802, a California law requiring buildings over 50,000 square feet to submit annual energy consumption data to the state. 

“It’s a challenge because most industrial owners are operating under a triple net lease model, so utilities are under the direct control of our tenants,” he said. “The usage is not something the landlords have insight into, yet the state holds us accountable.” 

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Industrial Real Estate and the North American Supply Chain Revolution

Originally published on October 20, 2023, by Logan Nagel for NAIOP.

Industrial real estate might have been one of the strongest-performing property types out there in recent years, but it is far from immune to change. During the panel “Industrial Real Estate and the North American Supply Chain Revolution,” held at NAIOP’s CRE.Converge conference in Seattle this week, Chad Griffiths, MBA, SIOR, partner and associate broker at NAI Commercial Real Estate, spoke with Matt Carroll, senior associate at Avison Young, about what’s in store for industrial properties in the coming years.

The background to modern-day industrial real estate is an ongoing dialogue about globalization versus deglobalization as the pandemic fades into the rearview mirror, Carroll said. There are proponents of manufacturing overseas and supporters of manufacturing in North America, as well as a paradigm shift from optimality toward optionality. “Optimality was … ’I want to be as efficient and low in cost as possible,’” he said. “And as we come out of the pandemic era, what you hear a lot of people talking about is having optionality…’If I can’t move all of my manufacturing back to the U.S., I want to least have the option to mitigate my risk by having the presence of manufacturing on this side of the hemisphere.’”

Another transformative force the panelists discussed was a recent rail merger, the acquisition of Kansas City Southern by Canadian Pacific. The merger will result in the first trans-American rail line linking Mexico, the U.S., and Canada, which Carroll described as like a tree with roots in Mexico. Griffiths said developers should consider opportunities for intermodal yards, airports and other industrial properties along the “trunk” of that tree.

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Adopt or Adapt: Learning from Amazon’s Real Estate Approach

Originally published on October 19, 2023, by Kathryn Hamilton, CAE for NAIOP.

Amazon’s real estate strategies have stretched and been reshaped over the last decade as the company – like every retailer – strives to expand its reach and get closer to the consumer. The largest developer of industrial real estate in the world, the company has always leaned into the innovation and partnerships that fuel its corporate culture and deepen its impact.

At NAIOP’s CRE.Converge conference this week in Seattle, Amazon Vice President for Worldwide Real Estate Daniel Mallory sat down for an in-depth chat in front of an audience of 1,500 commercial real estate leaders. Jean Kane, former CEO of Colliers International-Minneapolis St. Paul and the incoming chair of the NAIOP Research Foundation asked Mallory about his perspectives on everything from the company’s sustainability efforts to today’s market challenges to future workforces and beyond.

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Industrial Space Demand Forecast, Third Quarter 2023

Originally published by Hany Guirguis, Ph.D., Manhattan College and Michael J. Seiler, DBA, College of William & Mary in August 2023 for NAIOP.

Given current economic conditions and recent demand trends, the authors estimate that quarterly net absorption of industrial space will average 52.6 million square feet over the next two years. Total net absorption for the second half of 2023 is forecast to be approximately 104 million square feet; full-year absorption in 2024 is forecast to be around 205 million square feet; and absorption in the first half of 2025 is forecast to be approximately 111 million square feet (see Figure 1 for quarterly projections).

The Industrial Market

The industrial market remains relatively healthy, although not as strong as it was last year. After several quarters of demand for industrial space outstripping supply, the reverse has been true since the third quarter of 2022. Construction starts and transactions have slowed, reflecting higher interest rates, tighter lending standards and cooling demand. Supply and demand for industrial space appear to be converging toward a slower pace of growth that is more aligned with pre-pandemic trends.

The national vacancy rate stands at a historically healthy 3.7%, though vacancies vary greatly between different geographic markets. Port markets on both the East and West Coasts have the lowest vacancy rates, with markets in the Midwest having slightly higher rates. Average net asking rents are up 9.9% year-over-year.1 Interestingly, vacancy rates have increased slightly alongside rent growth. This reflects the delivery of new high-quality industrial space that can command higher rents. New deliveries have outpaced absorption, contributing to the uptick in vacancies. Land constraints in port markets present a barrier to new construction, contributing to lower vacancy rates and higher rents in those markets.

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Designing for Wellness in Distribution Centers

Originally published in June 2023 by KSS Architects for NAIOP.

The rapid expansion of e-commerce over the past decade has reshaped industrial real estate and the nature of work within warehouses and distribution centers. Occupiers have invested in mechanization, automation and warehouse-management systems to maximize throughput. Despite that, distribution centers often require a large number of workers to process incoming shipments and outgoing orders. Growing competition for workers and increased awareness about workplace wellness have generated interest in designing interventions that can make these centers healthier and more attractive work environments. Wellness features in industrial properties can contribute to market differentiation, increase employee retention, impact productivity and help meet environmental, social, and governance (ESG) goals.

The NAIOP Research Foundation commissioned this report to offer design recommendations that improve occupant well-being. The authors conducted secondary research, observed conditions in existing distribution centers, and interviewed occupants to collect information on key wellness concerns. They then drew from these findings to design a prototype distribution center with elements and features that contribute to a healthier and safer work environment.

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How Split-level Industrial Could Work in Forgotten Industrial Sites

Originally published on June 9, 2023 by Kathryn Hamilton, CAE for NAIOP.

Every day, developers drive past prime industrial real estate sites that could be warehouse-perfect, were it not for the sloped grade that would cost too much to excavate to make the facility level. Enter a new solution: a split-level building that doubles the space by creating efficiencies in construction costs and land use.

This unique multistory prototype design solution by Ware Malcomb can help utilize forgotten sites that were previously deemed unsuitable for industrial development due to their complex topography.

Frank Di Roma, OAA, MRAIC, regional vice president, and Luke Corsbie, PE, PLS, LEED AP, regional director, civil engineering, both with Ware Malcomb, walked I.CON East attendees through this exciting new concept and discussed the benefits of using split-level industrial in unexpected locations.

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The State of the Markets for Industrial Real Estate

Originally published on June 8, 2023 by Natalie Fidlow, CFA for NAIOP.

“Volatility and uncertainty” describe the current state of the markets, according to Tom Griggs, managing director and head of industrial & logistics for the East at Hines, with the past 12-18 months presenting a difficult environment. Griggs led an expert panel discussion on the outlook for the industrial real estate capital markets at NAIOP’s I.CON East.

Is there light at the end of the tunnel?

Peter Nicoletti, head of capital markets in New York at Colliers International, recalled the third quarter of 2022 when the markets seized up. “In the following months, spreads on deals slowly started coming in until January of this year, when Silicon Valley Bank and Signature Bank failed. At that point, spreads blew back out.” Lenders are risk-off. Colliers International does have $1.8 billion in construction deals and has noticed that there has been a tightening in underwriting standards. Now, a deal’s loan-to-cost is around 55-65%. The days of 85% are gone. Nicoletti anticipates seeing more competitive pricing as those investors who moved to the sidelines return.

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Labor Trends in the Powerhouse Logistics Empire

Originally published on March 14, 2023, by Marie Ruff for NAIOP.

Experts dug into the data behind labor and workforce trends in California’s Inland Empire and the surrounding regions, one of the most competitive labor markets for distribution and manufacturing workers in the western U.S., during a session at NAIOP’s I.CON West in Long Beach, California. Speakers noted that alternative markets like Phoenix and Las Vegas/Reno could provide valuable options outside of the Inland Empire, especially when considering total cost modeling.

The Inland Empire comes out on top according to many metrics in Hickey & Associates’ 2023 analysis, from its labor supply to location. “But if you look at the labor cost, the real estate costs, and the transportation costs, things start to change,” said session moderator Kevin Dollhopf, MBA, MA, MCR, IAMC Fellow, principal, Hickey & Associates. While the Inland Empire is great from a real estate market and returns perspective, occupiers are having heartburn from what’s going on, he added. 

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The Capital Markets Outlook for Industrial Real Estate

Originally published on March 10, 2023 by Marie Ruff for NAIOP.

The industrial real estate market has been on fire, but this still-hot sector is expected to cool, according to the latest Industrial Space Demand Forecast from the NAIOP Research Foundation. A powerhouse panel of financial experts addressed the capital markets outlook for industrial real estate in a session at NAIOP’s I.CON West in Long Beach, California. 

Session moderator Jim Linn, executive managing director, Newmark, led the discussion. The panel included Valerie Achtemeier, vice chairman of capital markets, CBRE; Gregg Boehm, managing director, market officer, industrial, Ares Real Estate Group; and Max Gagliardi, CFA, senior managing director, capital markets, Dalfen Industrial. 

Where are you seeing opportunities? 

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Multilevel Warehouse Design’s Vertical Puzzle

Originally published on March 10, 2023, by Kathryn Hamilton, CAE for NAIOP.

As industrial spaces move deeper into urban areas, the need to build up instead of out will increase. Vertical industrial – whether used for fulfillment, maker spaces, labs or light manufacturing – requires a new approach, different requirements and a whole lot of explaining.  

Russell Hazzard, AIA, president of MG2, led a panel of experienced vertical industrial developers and architects at this week’s I.CON West in Long Beach, California, that explored the advantages and challenges that accompany these types of projects.  

It’s important to consider three main elements of multistory industrial that differ from traditional single-story industrial before getting started, said Ken Sun, senior vice president, regional head of development – West region, Prologis. First is the target customer and their use, whether traditional warehouse, third-party logistics company, fleet management or another purpose. 

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Cutting-edge Manufacturing Facilities Offer Glimpses of the Future

Originally published by Marie Ruff for NAIOP E-Newsletter.

The next phase of advanced manufacturing innovation is ready for launch in the Long Beach region of California. Attendees of NAIOP’s I.CON West were able to go behind the scenes on a project tour of cutting-edge advanced manufacturing facilities in Douglas Park, an industrial, retail and hotel center that spans more than 260 acres adjacent to the Long Beach Airport.

Morf3D: Advancing Aerospace with Additive Manufacturing

The first stop on the tour: Morf3D, a company that primarily serves clients in the aerospace, space and defense industries. These industries require highly specialized equipment that meets stringent specifications including being durable, lightweight and thermal-resistant, which Morf3D achieves using metal additive engineering and manufacturing.

The 90,000-square-foot Douglas Park building was a spec building that Morf3D has been adapting to suit the varying needs of their clients, from security clearance requirements to power needs. Some tenants require temperature control within four degrees to keep the equipment running smoothly and prevent any quality concerns with the products; others require the temperature to not vary more than two degrees.

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NAIOP Insight: Industrial Development Near Residential Areas

Originally published on February 9, 2023, by NAIOP.

E-commerce facilities located near residential communities enable faster delivery and access to the workforce who will help companies expand. Explore how developers are working with communities to find creative solutions to their concerns and position these facilities for success.

NAIOP Insight by: Brian Quigley, Executive Vice President, Conor Commercial Real Estate

This NAIOP Insight was filmed at CRE.Converge 2022.

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Bringing Wellness to the Industrial Workplace

Originally published on January 20, 2023 by Brielle Scott for E-Newsletter.

Wellness in the workplace – it’s a buzzy phrase we hear often in reference to office buildings, but when it comes to the industrial and manufacturing facilities that are ubiquitous to us, what kind of wellness features would we find inside?

Long days, physical labor and often isolated locations can take its toll on the workers at these locations. According to the U.S. Bureau of Labor Statistics, there was a 60% turnover rate in the industrial sector in 2020, and it stands to reason that the additional burdens placed on these essential workers (not to mention the staggering increase in e-commerce demand) during the COVID-19 pandemic may have exacerbated the issue.

As any corporate accountant can tell you, employee turnover can have a major impact on a company’s bottom line. And large-scale owners of industrial assets are under the same market pressures as office, multifamily or hotel owners when it comes to ESG reporting and performance.

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How the Warehouse Boom Changed the Way America Looks, Lives, and Works

Originally published on October 19, 2022, for Business Insider.

As the US emerged from the Great Recession, cheap real estate and the rise of e-commerce collided to create a warehousing boom.

As Amazon and others began building million-square-foot distribution centers, construction skyrocketed. Since 2011, over 2.3 billion square feet of new warehouse space has come to market — enough room to comfortably stuff 3 ½ Manhattans inside.

Past industrial booms created coal countries, steel cities, and oil towns. Now warehouse boomtowns shoot up in places like California's Inland Empire, Pennsylvania's Lehigh County, and Columbus, Ohio, and the number of warehouse workers has nearly tripled in a decade.

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Walmart unveils next-gen fulfillment center

Originally published on September 28, 2022, by Dan Berthiaume for Chain Store Age.

Walmart is debuting a proprietary supply chain automation system in its new high-tech fulfillment center.

Located in Joliet, Ill., and described as the "first-of-its-kind" for Walmart,  the 1.1 million-sq.-ft, high-tech facility is the first of four state-of-the-art fulfillment centers dedicated to e-commerce that Walmart plans to open during the next three years. It will store millions of items available on Walmart.com, that are then picked, packed, and shipped directly to customers.

The new center will also fulfill third-party Walmart Marketplace items shipped by Walmart Fulfillment Services (WFS), the company's end-to-end fulfillment service for third-party e-commerce sellers.

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From Salt Storage Facility to Concert Venue

Originally published in the Fall 2022 Issue of NAIOP's Development Magazine.

The Morton Salt Company warehouse on Elston Avenue in Chicago once furnished tons of preservative salt for the city’s tanning industry. Today it is itself preserved — a city landmark in the process of rebirth as a concert venue combined with commercial and office space.  

The complex, containing several buildings in a 4.2-acre site along the North Branch of the Chicago River, is being transformed to contain a 30,000-square-foot indoor concert venue in the former salt storage shed, 60,000 square feet of leasable office and commercial space in what had been a three-floor packaging building, additional space in a former garage, and an outdoor performance venue in the footprint of a recently demolished second salt shed.

The site is in the city’s North Branch Industrial Corridor, which has seen considerable development since partial rezoning in 2017 to encourage mixed-used development. The zoning of this site changed from M3-3, Heavy Industry District, to C3-3, Commercial, Manufacturing and Employment District.

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Many US Renters Rely on Self Storage, with GenX as Top Users

Originally published on September 20, 2022, by Maria Gatea for NAIOP Blog.

E-commerce provides easy access to goods with the click of a button, filling homes with stuff, stuff and more stuff. Meanwhile, the trendy minimalist lifestyle emphasizes only keeping what is needed and eliminating everything else. Where does the average American end up on the spectrum of goods ownership? As it turns out, among apartment renters, one in five uses self-storage to manage their belongings, at least temporarily.

Self-storage is a rapidly developing service that assists in life events such as moving, downsizing, or changes in family size. More recently, the widespread need to create home offices with the rise of working from home during the COVID-19 pandemic has added to the traditional sources of demand for self-storage. Renters, in particular, are finding more use for storage away from home as they move more often, and apartments are generally smaller. On average, renter-occupied homes in the U.S. are smaller than owner-occupied homes by largely 800 square feet. As a result, many renters are using self-storage as an extension of their homes.

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