In addition , supply chain disruption poses yet another hurdle for retailers that have already been hard hit by the pandemic by adding costs and putting a dent in sales . In some cases , it is difficult for retailers to get certain product on shelves , especially the right seasonal products in stock at the right time . After a lull in retailer store closings in 2020 and 2021 , there could be more shakeout ahead in 2023 , notes Conway . “ I think the second shoe to drop is coming later this year or early next year , and it could be the final straw that breaks the back for some retailers ,” he says .
NEW LOCATION STRATEGIES Companies are in the process of remaking supply chains from those that rely on the West Coast as a through-put of goods , to a more north-south model . For industry pros helping their clients with location and investment decisions , they need to focus on the “ Golden Triangle ” section of the country , notes Conway . Seventy percent of the population and 80 percent of manufacturing in the
The U . S . Golden Triangle
Far West
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U . S . is located in that Golden Triangle , which runs from the Great Lakes down to Texas , across to the Southeast , and up through the mid-Atlantic . That region has access to five of the seven Class I railroads and over 20 ports , half of which are deep water .
Diversifying port strategy and becoming less reliant on West Coast ports are key foci for major companies , agrees Thompson . Walmart was one of the first major corporations to identify a “ four corners ” port diversification strategy that brings goods into the U . S . from two ports on the West Coast and two on the East . The company knew it would
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increase costs , but it reduces the risk of disruption , he says .
Another strategy impacting location decisions is the regionalizing of supply chains to get closer to the consumer , which is creating a resurgence of manufacturing activity in and around the U . S . with a huge uptick in manufacturing-related projects in the U . S ., says Thompson . According to JLL ’ s Industrial Tenant Demand Study , requirements for manufacturing space jumped to 50.4 million sf in 2021 — nearly double the annual requirements seen in 2019 and 2020 . The report noted that the driving factor for the increased demand is companies ’ desire to establish a U . S . sourcing presence and a realization that long supply chains are at greater risk of disruption .
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Seventy percent of the population and 80 percent of manufacturing in the U . S . is located in or near the Golden Triangle , which runs from the Great Lakes down to Texas , across to the Southeast , and up through the mid-Atlantic .
On the manufacturing side , the Southeast has always been very attractive because of the labor , incentives , infrastructure , proximity to ports , and the population . “ We ’ re also seeing a lot of the high-tech manufacturing , such as semiconductors , going into Austin and Phoenix ,” adds Thompson . On the distribution side , demand for space is starting to spread to secondary and even tertiary markets because companies need to be able to get their goods to consumers faster , within a day or same-day . That is driving demand for distribution in markets such as Denver ; Salt Lake City ; Charleston , S . C .; and Savannah ,
Ga ., whereas 10 years ago there wasn ’ t much activity , he says .
Announcements for new manufacturing and other company facilities create anchoring activity that drives demand for commercial real estate , adds Conway . Commercial real estate investors are working to figure out where that anchoring activity is — where are the new plants , where are the new jobs , and where is growth outpacing inflation . “ Where metrics are above the rate of inflation , that ’ s where investors are looking at the opportunity ,” he says . Developers and investors are looking at opportunities across the spectrum of property types , including industrial , multifamily , and retail . The one exception where investors are still hesitant is office because of the slow return to on-site work , notes Conway .
PROJECT DELAYS AND RISING COSTS Secretary of Transportation Pete Buttigieg said it best when he described the supply chain problem as “ ship to shelf ,” notes Jason W . Conway , CCIM , senior director , real estate development at Opus Development Co ., in Minnetonka , Minn . “ I think it ’ s going to be at least a three-year issue and probably much longer to get all of those issues aligned and back to normal , whatever that means .” In the meantime , supply chain disruption is creating longer lead times and contributing to higher costs for building materials .
“ The biggest impact for us is schedule . One of the first questions clients ask is , ‘ When can we get into the building ?’” says Jason Conway . In his current role at Opus , Conway is focused primarily on spec industrial development and build-to-suit projects in Minnesota , Iowa , and Nebraska . For example , one of the key materials for developers is roofing . Vendors will quote a price and estimated time of arrival on delivery , but they won ’ t provide a hard date or guarantee the price until the material is delivered on site . “ That rolls downhill to us , and then we try to put together a schedule and lease commencement dates for tenants that need to move in ,” he says .
Similarly , tenants are running into delays when they are ordering manufacturing equipment and materials . Opus has one tenant that mounts tires onto rims . The machine they need to do that was delayed by six to eight weeks . They are leasing a new space that is all built out and ready , but they can ’ t operate because they don ’ t have their machines yet . “ It is this compounded effect with building materials , vendors , and suppliers that are all experiencing the same issue and exponential effects from what ’ s going on in the entire supply chain ,” says Jason Conway .
Steel is another key material that is experiencing long lead times resulting in delays of 90 to 180 days in some cases . Industrial projects that used to have eight- to
Previous spread , photo by Abstract Aerial Art
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COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2022