Need for speedier delivery stokes hot industrial market
That was the theme Tuesday at the second annual Northeast Industrial Real Estate Summit, which attracted more than 325 attendees from 20 states to Maritime Parc in Jersey City.
Booming e-commerce is creating new demand and new requirements for warehouses and distribution centres in the region, putting additional pressure on an already tight real estate segment, according to several speakers.
Being forced to compete against, or match, e-commerce giant Amazon's promise to provide same-day delivery has jacked up competition for the retail world, UPS and FedEx, as companies try to meet the needs of empowered consumers, panellists said.
"Everybody's got a point of sale in their pocket [referring to smartphones], we all demand pricing transparency, we all demand fast and free shipping, and that puts pressure on corporations," said Frank Petkunas, senior vice president and regional director for IDI Gazeley, Brookfield Logistics Properties, in Radnor, Pa.
"To get a customer, and more importantly, to keep one, it turns into a business of order fulfilment," he said. "Way back when, they used to look at warehouses as passive storage. But now, they're looking at them as contributors to top-line revenue."
The refrain during the daylong conference was that demand for industrial sites in North Jersey, with its proximity to New York City, was soon going to surpass the number of existing properties and those in the pipeline. Areas such as the Meadowlands have limited open space for construction of new facilities.
"Everyone in this room knows that demand continues to outstrip supply," said Peter Schulz Jr., East Region executive vice president for First Industrial Realty Trust Inc., a real estate investment trust in Exton, Pa.
But discussion of the current retail environment, and consumer demands, dominated several panels, with John Holub, president of the New Jersey Retail Merchants Association, taking part in the session on "Supply Chain, Logistics, E-commerce Distribution and New Industrial Real Estate Tenants."
Online sales only represent 10 percent of overall retail sales, Holub said. But panellists described e-commerce's impact — its requirement of speed to market — on the industrial sector.
Many such tenants are looking for state-of-the-art logistics space to handle fulfilment of online orders. These warehouses in some cases need to be large enough to have enough inventory on hand to turn around an order quickly, and they require more personnel to process orders, sometimes on a 24-hour basis, Petkunas said.
"These warehouses become retail centres," he said, which means industrial buildings need more parking and other amenities for employees than in prior times.
Proximity to large population areas is important because transportation costs make up a large portion of the bill in terms of distribution and logistics, said Anne Strauss-Wieder, a freight consultant based in Westfield. That, and the shortage of truck drivers, has increased the importance of having a product travel a short distance from a warehouse to its final destination, the so-called "final mile," she said.
Warehouses have become staging areas for same-day delivery, Strauss-Wieder said.
"We want it now, we want it free," she said.
Online delivery grocery service Peapod decided to take 345,000 square feet of a 740,000-square-foot distribution facility in Jersey City, after getting approval for $34.6 million in New Jersey tax credits, because it delivers perishable food and needed to be close to New York City, said a broker involved in that deal, Steven Beyda, a CBRE senior associate from East Brunswick.
To facilitate speedy delivery, Beyda said, some companies are opting to open smaller 200,000-square-foot regional warehouses around the country, rather than have just one 1 million-square-foot distribution centre.
North Jersey's industrial market, while still desirable, has its challenges, several executives said, with tenants who inked five-year leases during the recession expecting to pay the same rents and get other concessions from landlords with their renewals.
"They're going to see some sticker shock," HFF Managing Director Michael Nachamkin said.
source: northjersey.com
