Duke Realty Regional Senior Vice President Ryan O’Leary offered insights into the growing e-commerce impact in a recent feature for REBusinessOnline. The article explored the continuing evolution of the Midwest industrial market in reaction to e-commerce growth, as well as the increasing demand for industrial parks near densely populated areas.
O’Leary’s region includes the Chicago, Minneapolis, and St. Louis markets. He estimates that e-commerce has driven 35 to 40 percent of the eight million square feet of second quarter industrial absorption seen in Chicago. “E-commerce is affecting more than just the industrial real estate business park,” O’Leary told REBusinessOnline. “It is the most significant driver of demand in industrial space across the county right now. Business parks are obviously a big beneficiary of that.”
Business parks with good infrastructure, easy flow for heavy trucks and autos, and access to major thoroughfares are three steps ahead in attracting tenants, who usually need their buildings delivered very quickly.
Expansion capability is another factor driving demand, O’Leary explained. In Duke Realty’s Gateway North in Otsego, the northwest submarket of metropolitan Minnesota, the past two years have seen 1.25 million square feet of new construction. Blu Dot, a designer and distributor of modern furnishings, opened its 150,000-square-foot headquarters at Gateway North a little over a year ago and broke ground on a 120,000-square-foot expansion in July.
It was an arrangement planned for in Blu Dot’s initial agreement with Duke Realty–flexibility and customer responsiveness that Blu Dot needed, given its 30- to 50-percent annual growth.
“Gateway North has been a very big success,” O’Leary said. “This park accounted for a major portion of the absorption in the [Minneapolis] market throughout last year. The park just had the right mix of land flexibility and the ability to deliver new bulk product for these tenants.”
Other Gateway North tenants include Room & Board, in a 486,000-square-foot build-to-suit facility under a long-term lease, Ruan Transportation Management Systems, which occupies a 300,000-square-foot distribution building, and Wagner SprayTech Corp., which will move into a 220,000-square-foot warehouse/distribution facility in the fourth quarter of 2016. With the probability of expansion in mind, Wagner’s build-to-suit property has been planned with the ability to grow by another 50,000 square feet.
In addition to flexibility, labor and logistics are top drivers of industrial demand, according to O’Leary. “A lot of tenants do significant labor analysis,” he explained, “both on availability and costs, from location to location. So having these business parks wherever there’s a good draw of labor is critically important for big distribution centers.” Balancing the need for labor are the logistical demands: “It’s not as much about amenities as it is transportation routes, being close to rooftops and the labor pool, as well as your access and roadway infrastructure for trucking. So it’s more of a supply-chain analysis than it is an amenity base.”
O’Leary told REBusinessOnline, industrial real estate’s evolution at the moment is toward this e-commerce demand, which is changing how buildings need to function, accept inventory, and accommodate the new on-demand flow. “The key,” he said, “will be finding sites that allow for zoning that can provide solid access to a major population base and can accommodate the flexibility.”
For more on how e-commerce is transforming the industrial real estate market, see this same-day delivery issue of our storybook publication, Reliable Answers, which is all about the e-commerce impact.