Commercial Investment Real Estate September/October 2019 | Page 28

to get product out to different parts of the region and the
country,” says Cedric Matheny, CCIM, a principal and vice
president at T. Dallas Smith & Company in Atlanta.
Increasingly, consumers are demanding faster and faster
delivery times. Next-day or same-day delivery is moving
toward two-hour delivery in some urban locations; consum-
ers are insisting on a broader selection and availability of
goods, notes Snyder. “As a result, properly selecting a market
and a logistics property are now business-critical decisions
that favor high-quality space in prime locations near large
population centers,” he says.
In a recent report on logistics real estate, Prologis noted
that future supply chains are being impacted by mega-
trends such as e-commerce, shifting consumer behavior,
demographic trends, and urbanization. Supply chains will
be required to focus on greater efficiency driven by technol-
ogy such as autonomous vehicles, robotics, automation, and
predictive analytics.
Transportation Drives Location Decisions
Whether companies are moving goods locally, regionally,
or nationally, transportation infrastructure is the backbone
of supply chains and a critical factor in the size, type, and
location of key facilities. “Transportation is a big driver for
how we look at logistics and how we look at the industrial
real estate market,” Matheny says. “Having multiple modes
of transportation is so important.” Companies are moving
goods via trucks, rail, airports, and inland rivers.
Many are taking note of Amazon’s strategies for maxi-
mizing efficiency in managing supply chains and deliver-
ing goods to the end consumer. “Obviously, the elephant
in the room in supply chain would be Amazon,” says
Matheny. The e-commerce giant is gobbling up space in
markets across the country. Still, many distributors and
e-commerce companies are growing or shifting their supply
chains according to models that vary depending on the user
and type of goods, as well as location of the end customer.
Port markets on both the East and West coasts continue
to be a target for distribution companies and serve as gateway
markets for growing industrial hubs. For example, the
deepening of Georgia’s Port of Savannah is fueling more
growth in the surrounding region, including key distribu-
tion hubs. The Atlanta metro area has one of the largest
spec development pipelines in the country, with 16.1 mil-
lion sf of space under construction as of 1Q2019, according
to CBRE. Access to rail is also increasingly important as a
cheaper way to move goods.
In the Midwest, Kansas City is one market that is ben-
efiting from changing supply chains. The metropolitan sta-
tistical area ranks 28 th in the country in terms of population.
Historically, it was considered more of a tertiary market
for distribution, but the e-commerce boom has elevated
Kansas City as a top secondary, or even primary, distribu-
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September | October 2019
tion market for companies that need to reach a consumer
population within a day or two. “With that change, we have
seen a development boom in big-box distribution facilities,”
says Nathan Anderson, CCIM, SIOR, a partner at NAI
Heartland in Kansas City.
Since 2011, the metro area has seen more than 30 million
sf in new industrial space built at an average of about 4.5
million sf per year, Anderson notes. The surge in develop-
ment is coming from both e-commerce demand and manu-
facturers that have been expanding or upgrading facilities
post-recession.
Development has slowed to about 2 million sf, as most
e-commerce companies have made their moves for this cycle,
Anderson says. In Kansas City, companies also are looking
for facilities that have good proximity to rail hubs. “A lot of
this product is coming from the intermodal chain via the
ports of Los Angeles and Long Beach,” says Anderson. “The
ability to take a container from Kanas City’s intermodal port
directly to your warehouse is an advantage that we didn’t
have here prior to the last cycle,” Anderson says.
It can be a slow process to “turn that battleship” and mod-
erate existing supply chains and infrastructure, Anderson
notes. Some companies are switching to models based on
two or three regional distribution centers that dispersed,
making it easier to cover the last mile to the consumer within
one to two days from when an order is placed, Anderson
says. “We are seeing a lot less users that would be in the
500,000- to 1-million sf range and more smaller users that
are in the 100,000- to 300,000-sf range, as they try to move
buildings into smaller footprints, in more locations where
they can reach population zones,” he says.
Industrial Goes Vertical
Companies are still trying to figure out last-mile delivery
with distribution points that move closer to urban pop-
ulation centers. “In the land of Amazon, we have seen
many different, unique ways to address that problem,” says
Sean Durkin, CCIM, MSRE, SIOR, principal at Lee &
Associates in Seattle. In most cases, the solution is simply
to deal with what is available. For example, Amazon has
space in the Starbucks headquarters building in downtown
Seattle, where space in the aisles for sorting and packag-
ing is extremely tight. “Amazon also has to deliver things
in shorter trucks to even have access to the area, and it is a
quick pick and pull,” Durkin says.
One new trend in Seattle in its close-in market is multi-
level industrial facilities that use a freight elevator that
can accommodate a forklift to access second-, third-, and
fourth-floor distribution or light assembly/manufacturing
spaces, Durkin says. Seattle is also a test case for one of the
first multistory distribution facilities in the U.S. Prologis
completed Georgetown Crossroads last year, minutes away
from downtown. The three-story, 590,000-sf warehouse
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