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The Key to Industrial Site Selection? Consumers and Labor

Rising consumer delivery expectations and tight labor markets are the two most important site selection criteria for today’s industrial site selectors.

Q4 2018
Following our Consultants Forum, Area Development discussed the state of industrial real estate in an evolving world with Rob Wheeler, Senior Vice President, Integrated Portfolio Services, at JLL. Interview conducted by Margy Sweeney, Founder and CEO, Akrete, Inc. and Area Development Editorial Board member.
Industrial real estate has been booming nonstop for the last five years. The “ecommerce effect,” the subsequent increase in demand for UPS and FedEx deliveries, and the rise of omnichannel retail have all fueled unprecedented growth. While the sector is at the top of the market right now, some economists see industrial going strong through 2019.

In this high-growth frenzy, two factors have risen to the top of the industrial site selection list: rising consumer delivery expectations and tight labor markets.

Rising Consumer Delivery Expectations
Consumer delivery expectations have rapidly transformed in the past few years, with consumers now expecting product within 24 to 48 hours - and at no cost. The “ecommerce effect” is in full force, with retailers competing to provide 24-hour or same day delivery to many urban centers. With inventory at a record high, e-commerce retailers need space for all that ready-to-ship product.

Enter last-mile warehouses, strategically located to serve dense populations within hours. While not exactly within a mile radius of the target populations, these warehouses are located close to interstates and other infrastructure and poised for fast delivery. New developments are going up across the country, including the U.S.’ first multi-story warehouse in Seattle.

In addition to new developments, adaptive reuse is a common tactic for creating last-mile facilities. For example, Chicago’s downtown Millennium Park garage facility may soon accommodate about 200,000 square feet of warehouse space to accommodate last-mile demand in downtown Chicago.

Future infill developments will likely pop up in residential areas to provide one- to two-hour deliveries, most likely for groceries. Innovative transportation modes of the future will also influence the locations and design of all industrial developments. Hyperloop trains may soon deliver freight at 600 mph, necessitating easy access to this transportation. Drones are even becoming more serious modes of transport and may become increasingly prevalent in rural areas.

Tight Labor Markets
Second only to transportation proximity, labor availability is perhaps the most important site selection criteria for industrial users right now. With about 6.5 million unfilled jobs in America, labor is an issue in nearly every industry. Employees are increasingly job-hopping for better working conditions or wages. While a large number of people appear to be underemployed, working at jobs beneath their education or skills level, little is known about how to locate and reskill these potential workers.

The inability to fill warehouse jobs is a driving factor behind warehouse and manufacturing automation. Trucking, intertwined with the industrial sector, will also become automated with self-driving trucks assisted by humans at key stopping points. In 2016, a San Francisco company shipped more than 50,000 cans of beer across Colorado in an autonomous truck test drive, and the truck proved to be safer and more efficient than a human driver.

Another hotly anticipated industrial property trend is that the nearshoring of jobs will also begin soon as jobs in China (and Japan) return to North America. As the populations of China and Japan age and the U.S. and Mexican populations become increasingly younger, North America may once again become self-sustaining in terms of labor.

Editor's Note:Area Development’s Indianapolis Consultants Forum featured a presentation on industrial real estate in an evolving world by Rob Wheeler, Senior Vice President, Integrated Portfolio Services, at JLL. The preceding were key ideas from Wheeler’s presentation and subsequent sit-down interview with as compiled by Jennifer Harris, Area Development contributor, Akrete, Inc.

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