BY Colliers International knowledge leader – Edited by Scott Raebe, colliers Boise
Over the years, industrial tenants have typically operated in urban areas separate from residential neighborhoods and retail centers. But as the availability of large industrial land becomes more scarce, industrial occupiers are
inevitably moving to parcels that are in suburban or residential areas or at least the lines between are becoming blurred.
What does this shift mean for logistics, retail and the communities?
Industrial property in suburban areas present a number of benefits to the occupiers themselves, as well as the communities where they operate. For example, an e-commerce company that builds a distribution center in a residential, suburban area means that they’ll be logistically closer to their consumers. Final-mile delivery is one of the most costly pieces of logistics for companies, and can account for roughly 53% of shipping and transportation costs. Additionally, according to a 2018 PwC consumer insights survey, 62% of consumers indicated they expect online purchases to be delivered within two days or less. And with e-commerce slated to become the largest segment of retail globally by 2021, locating closer to consumers in suburban America is a win-win for both e-commerce companies and consumers alike.
When choosing a location for development, labor studies are conducted to ensure there is adequate labor available in the area to sustain operations. In addition to being closer to consumers, locating in suburbia means that industrial occupiers would be in closer proximity to their labor pool. With the U.S. unemployment rate currently at a nearly 50-year low, the availability of labor is a major issue. Not only does it mean more labor availability for these companies, but it also means workers will likely be closer to where they work, a bonus for both sides.
While there are certainly major benefits that industrial occupiers enjoy by locating in suburban areas, there are challenges that emerge. Communities are concerned about factors that could change the dynamics of their neighborhood, such as traffic, parking, work hours, noise pollution, obstructed views and pollution caused by the number of idling trucks.
However, a lot of these challenges will be future non-factors. “All major trucking manufacturers are developing and planning to implement electric trucks in the near term. The technology is really close now. Just think, no more engine idling,” notes Gregory Healy, Colliers’ senior vice president and head of Colliers’ Supply Chain & Logistics Consulting group. “These trucks are quieter, at least 30% more cost effective when compared to internal combustible engines and reduce pollution tremendously as they produce no exhaust in transit and no engine idling.” UPS, for example, is focusing on implementing electric, zero-emission vehicles in their own operations. From 2010-2017, the cost of electric batteries for vehicles dropped by a whopping 80%,and is expected to drop another 50% or more by 2020 or 2025.
There are also perceived cons of industrial occupiers locating near residential areas that might be shifting. In the past, homeowners were often worried that a warehouse in their neighborhood would reduce their home’s property value. But as the fundamental shift in the way consumers buy and receive their products continues to evolve, much like the convenience of having retail stores near a residential neighborhood is perceived as a benefit, having a large distribution center would be equivalent to having a wide variety of stores just a click away.
WHAT’S NEXT FOR INDUSTRIAL OCCUPIERS?
What will the future bring for industrial occupiers and where they choose to locate? With the rapid proliferation of e-commerce in conjunction with the shrinking availability of developable land, we will likely see the trend of industrial warehousing commingling in suburban areas continue. “Consumers have already embraced e-commerce, and the investment community is abundantly backing e-commerce,” adds Healy. “The last part is for communities to understand how this is the future, and that this trend will help bring prosperity and convenience to communities.”