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Mid Atlantic R eal E state J ournal Publisher .............................................................................. Linda Christman Publisher ................................................................................. Joe Christman Section Publisher ...................................................................... Steve Kelley Senior Editor/Graphic Artist ...................................................Karen Vachon Production Assistant . ....................................................................Julie King Associate Publisher ...............................................................Danielle Welch Office Manager ...................................................................... Joanne Gavaza Guest Columnists .......................................... Bruce Johnson, Bedford Cost Segregation; Steve Bussel, Bussel Realty Corp.; Lee Wasserman, LEWCorp.; Glenn Ebersole, Hollenbach Construction; Marc Snyder, Kaplin Stewart; Suzanne Schiller, MGKF; Chuck Lanyard, The Goldstein Group; Jerry Nelson, Stark & Stark; Ahsin Rasheed, DDG; Barry Schmidt, Schmidt Construction Mid Atlantic R eal E state J ournal ~ Published Semi-Monthly Periodicals postage paid at Rockland, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal, 312 Market St. Rockand, MA 02370 USPS #22-358 | Vol. 26 Issue 22 Subscription rates: $99 - one year, $198 - two years, $4 - single copy REPORT AN ERROR IMMEDIATELY MARE Journal will not be responsible for more than one incorrect insertion Toll-Free: (800) 584-1062 | MA: (781) 871-5298 | Fax: (781) 871-5299 www.marejournal.com The views expressed by contributing columnists are not necessarily representative of the Mid Atlantic Real Estate Journal
888.299.1438 / maxspann.com 23 Opportunities NY & NJ Executive Home, Firehouses, Restaurants, Professional Buildings, Residential Lots Attention Real Estate Investors & Developers! 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C&W Compares Industrial Market Predictions to Actual Trending John Morris
C
ushman & Wakefield’s Industrial Services for the Americas and Re-
search for the Americas teams this week released “Reality Check: Evaluating Seven Indus- trial Real Estate Predictions” which looks at how closely the industry has tracked to expecta- tions, and highlights the trends that areworthy of continued con- sideration as companies address their supply chain strategies. “As the U.S. economy started to creep down the road to recov- ery, fundamental shifts in retail shopping patterns and manu- facturing strategies were begin- ning to manifest themselves in the industrial landscape,” said Cushman & Wakefield’s John Morris , leader, Industrial Ser- vices for theAmericas. “Avariety of industry watchers and media outlets contributed to the buzz, and we made our own predic- tions about which trends would likely bring wide-reaching, last- ing changes and which were likely to be short-term blips.” PREDICTION 1 : E-com- merce growth will outpace growth in overall retail sales, causing fundamental shifts in order fulfillment strategies and models. Status check: On track. The growth of online retail sales as a percentage of total retail sales is showing no signs of slowing. Forester Research Inc. projects it will reach 11% by 2018, up from about 8% today. “The new retail ecosystem will requiremorewarehouses (many of them highly specialized), dif- ferent methods for the delivery of purchases, and new hybrid fulfillment center formats,”Mor- ris said. PREDICTION 2 : To meet e- commerce service expectations for a new kind of shopper, DCs will be located closer to urban centers. Status check: On track. “As delivery evolves from two- to-three-day models to one-day and same-day delivery, facilities are frequently being clustered closer to population centers,” Morris noted. E-commerce is fuelingnewDCprojects inmajor regional distribution hubs like Dallas, which currently has 16 million s/f under development. Demand around the edge of major cities for smaller infill fa- cilities is on the rise, a response
to the increasing trend toward same-day fulfillment. PREDICTION3 :Warehouse/ Distribution centers will contin- ue to grow bigger. Status check: On track . The averagewarehouse/distri- bution facility in the U.S. is 42% larger than it was in 2000. And mega-sized distribution centers greater than 1.0 million s/f are becoming more prevalent in several markets. PREDICTION 4 : Clear heights will continue to rise as fulfillment facilities requiremore sophisticated levels of automa- tion and efficient use of space. Status check: On track. “As warehouse distribution buildings have been expanding out, their ceilings have been going up,” Morris commented, adding that direct-to-consumer sales often require retailers to consolidate online and store- based fulfillment operations un- der one roof. The higher ceiling height improves racking options andmaximizespallet capacityby up to 25% in comparison to 32’ clear height. The higher formats increase cube capacity by up to 15% as well. PREDICTION 5 : Demand for large, modern warehouse space will outweigh supply in primary hubs, pushing activity into secondary markets. Status check: Wait and see. Although it is true that sec- ondary markets have seen an increase indevelopment, activity in primary markets has been stronger, particularly in core markets. But if top markets are not constrained yet, that scenario may not be far off, ac- cording to Morris. “Companies seeking good highway access, proximity to intermodal or ports, and strong labor are finding it increasingly difficult to secure sites that meet these criteria,”
he said. PREDICTION 6 : Construc- tion costs, construction labor supply and growing product demandcouldpresent challenges to progress, both for developers and end-users. Status check: On track. Construction costs for indus- trial product vary by city and market. New York/New Jersey and Chicago saw the most sig- nificant increases (10% and 5% respectively) in average costs in the last year. “These escalations are mainly due to rising labor costs (up 2.8% in the last year) and land constraints in the face of strong demand,” Morris ex- plained. “Overall development costs will likely continue mov- ing up.” PREDICTION 7 : Reshoring will bring more jobs, capital investment and demand for in- dustrial space back to the U.S. Status check: Between on track, and wait and see. “While the debate about how much reshoring is actually tak- ing place continues, there is no doubt it is happening, and companies are at the very least examining their options more closely,” Morris observed. In a 2012 Boston Consulting Group (BCG) survey, 37%ofU.S.manu- facturerswith sales above $1 bil- lion said they were considering shifting some production from China to the United States. Clearly, several industry pre- dictions are playing out as an- ticipated, though a few remain fluid. “As e-commerce adoption continues to grow at about 15% annually, and asmanufacturing continues to be more cost- and service-justified in locations where demand is strong (like here in the U.S.), it seems likely that the market for industrial space will remain resilient,” he concluded. n
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