Aaron H. Paris, Executive Vice President & Chief Operating Officer, DP Partners (Logistics Distribution Warehousing 2006)
Professional site selectors searching for the ideal location to expand, contract, consolidate, or retool the supply-chains facilities of corporations, distribution companies, and third-party logistics firms have long recognized the benefits of a business-park location over a stand-alone site. But in today's highly competitive global environment, those benefits have become more critical in both the short and long term.
The greatest advantage of locating within a business-park setting is flexibility. At the heart of a tenant's quest for flexibility are protecting over the long term its sizable investment in its logistics facilities and positioning the company for future change. Park owners recognize that tenants will spend more in facilities than developers will spend building them. Only 8 percent of most companies' supply-chain operations budget is earmarked for bricks-and-mortar occupancy costs. For some, it's even less.
Speed to Occupancy
Today, most logistics operators have very little clarity of vision past a three-year horizon. A company must be able to react quickly to the constant pressure to improve efficiency, making "speed to occupancy" significantly important in the decision criteria. Business-park developers are more likely to build facilities on a speculative basis than owners of single sites, making immediate occupancy a real option. Spec development has significant risk; however, the old adage of "being in the right place at the right time" justifies that risk and allows long-term owner-developers to provide the right facility in the right location, right now.
One safety feature of the modern industrial park is a common fire-protection pump house to dual-power the ESFR system with both diesel and electric pumps in the event of a power failure, lightning, or other disaster. Most free-standing buildings have one power source or the other, but not both.
Long-term owners of industrial parks are selective when it comes to tenant mix. May parks have restrictive covenants that protect the investment of owners and tenants. Besides the physical requirements of the park, the long-term owner wants a contamination-free park; many tenants, especially food companies, are very concerned about who their neighbors are.
Long-term owner-developers design "long-term leasability" into each facility. And it is for this reason that a long-term business-park owner can be a tremendous partner for a logistics operator. Although build-to-suits may be more customized than spec facilities, long-term spec developers must look at what tenants will want at least 10 years down the road, which makes spec buildings far more accommodating than one might expect. Developers pay close attention to column spacing, ceiling heights, dock positions, bay sizes, trailer parking, and other specifications to meet logistics operators' needs today and anticipated needs of tomorrow.
Just about any industrial developer can produce the physical advantages of a Class 1 warehouse or distribution center, but it's the relationship with the long-term park owner that creates a unique opportunity to maximize assurance against risk. So it is important to learn whether a park developer is a merchant builder that builds and flips ownership or a long-term holder of the facilities it develops.
Because logistics strategies change so often and so fast, many companies like to negotiate shorter-term leases. For them, a spec building is a much better option than a build-to-suit, which typically requires a long-term commitment. Park owners can be very flexible on lease terms at the spec buildings within their parks, especially if tenant improvements can be kept to a minimum.
To the company that needs to expand its operation to serve its growing customer base, the ability to add space in the most expeditious and least expensive way is extremely important. A stand-alone location often provides few options. In a business park, the owner can accommodate growth requirements by building an addition to the current facility or moving a portion of the operation into an existing building next door or across the street.
Available space is an additional consideration. Every August and September, many park owners get requests from tenants for additional short-term space to store containers of holiday merchandise. However, the need for emergency space is more than just seasonal. Floods, hurricanes, earthquakes, lightning strikes, fires, roof collapses, and industrial accidents are all reasons tenants may need additional space on a temporary emergency basis. In these situations, park owners can often lease tenants additional space in vacant warehouses or help them sublease additional space from other tenants in the park.
• Multiple locations: Because supply-chain logistics are under continual corporate scrutiny, distribution strategies change. Some centralize and go to fewer but larger facilities. Some decentralize and go for more but smaller facilities. Others consolidate, while others expand. With all this geographical monopoly being played at the corporate level, working with a national industrial developer with multiple parks in strategic locations across the country can be a tremendous advantage. An understanding of a tenant's business and how its facilities are utilized in one location makes it easier, quicker, and more cost efficient to satisfy its requirements in another.
• Consistency of service: The branding of industrial parks is in its relative infancy, but the benefits of national branding are not lost on site selectors. It means that the developer is specialized enough to be aware of new trends in the logistics industry. It means that if tenants are satisfied with the facility and ownership relationship in one location, chances are they will be satisfied with the same type of facility and ownership relationship in another. It just makes the expansion more seamless for all parties involved.
Aaron H. Paris is executive vice president and chief operating officer of Reno, NV-based DP Partners, which develops speculative and build-to-suit projects for purchase and for lease. To learn more, visit www.partnerwithdp.com or www.logisticenter.com.