The Rise and Growth of Industrial Real Estate

By: Natalie Tyler-Martin, Duke Realty

As the world stayed home and people began to reconfigure their purchasing habits; change and pressure began to meet an already-evolving industrial real estate market. Over the past several years, industrial has seen growth physically, geographically, and operationally. The sudden increase in e-commerce and supply-chain needs has only accelerated the progress and demand in the sector.

From Then to Now

Industrial buildings have not only changed in size and scale, but they have also changed in purpose. No longer are our buildings just being used for product storage and distribution, but now we house regional and national office functions hosting hundreds of employees and miles of conveyor systems. With a rise in grocery and convenience item delivery, industrial properties can also take on the distributor role to individuals participating in the gig-economy rather than a delivery service. E-Grocery is expected to grow from about 10 percent of grocery sales today to 25 percent by 2025, this expansion of services has meant the spaces themselves are forced to expand. When I first began in commercial real estate, industrial buildings were considered “large” at 300,000 square feet with 32-foot clear ceilings. Now, million square footers and 40 +-foot ceiling heights are now common.

We have also seen the accelerated introduction of robotics and automated warehouses. While the use of technology continues to evolve, during a recent survey we found that 24 percent of customers over 100,000 square feet were using high automation within their operation. Many of our customers are still using traditional methods to pick and pack but finding efficiencies through coordination of supplier networks. As technology evolves, space uses will accommodate diverse needs for new automation and robotic requirements. One of the greatest differences over the last two decades is the demand on the supply chain network. The goal of our customers is to get to their product or services to their customers as fast as possible. To make that happen they either need to get closer to their customer or get closer to transportation nodes or ports to expedite the delivery process. This means more industrial properties need to be built, creative repurposing projects are needed and existing buildings have to be demoed, modified or expanded. Industrial vacancy rates are so low that customers have to make quick decisions to secure a space. Land availability close to dense populations is hard to find and the entitlement process is long and expensive.

Pressing Issues

We saw at the beginning of the COVID-19 pandemic the necessity of a resilient supply chain. As the world reopens and organizations begin to rediscover their demand and operational needs, the existence of a resilient supply chain is even more paramount. The increased frequency of online orders and the expanding cohort of users contribute to the supply chain stressors. Pair that with a higher online return rate, it creates a system that demands flexibility and abundance.

The idea of a resilient supply chain also affects the physical design and operation of a space as well. Expanding categories to fresh food requires a new demand for freezer-cooler facilities as well as supply chain bottlenecks forcing companies to move away from just-intime production to expand inventory capacities. Consumer shopping habits were already fueling industrial growth, but the pandemic was an accelerator for many organizations to expand their supply chain networks.

Delays within the global intermodal networks have caused production disruptions and have led companies to re-establish domestic manufacturing. This is a major change from the way the sector previously operated. As demand continues to increase and the speed at which consumers would like their products continues to rise, domestic manufacturing is a foreseeable solution to this dilemma.

Based on a study by Duke Realty, e-commerce saw a 45 percent quarterly YoY growth and became 13.9 percent of total retail sales. Based on that growth, there is an expected incremental demand of up to 400 million square feet through 2022. This accelerated shift to e-commerce means property managers and organizations need to accelerate their exercise of solution-oriented thinking. We need to be thinking about what the retail spaces of the future will look like if we continue to see this rate of growth.

This is where strong tenant relationships are hugely beneficial. We must be a partner to our customers and their operations by understanding pain points and knowing when to call in the experts. The expectations of our customers are changing, and property teams must be ready and flexible to address new challenges and areas for growth.

We have to a partner to their operations by understanding their operations to a point knowing when to call in the experts but far enough away to make sure the customer takes ownership of their short- and long-term impact on the building.

What the Future Holds

Beyond the operations and the adaptation to the accelerated growth in e-commerce , the greatest changes in the industrial properties of the future are going to be the buildings themselves. We are going to see more industrial properties closer to more densely populated areas. Whether this is new construction or conversions of existing property types, there is going to be a need for more fulfillment centers closer to urban areas.

Where possible, buildings may get taller. A few companies have already invested in multi-story industrial buildings and as this trend shifts to support an expanded inventory, that means organizations need more space. They may begin looking up instead of around. With land availability remaining tight, multi-story buildings may be the solution to the industrial space problem. This will be an option for customers to combat the continued demand for both space and product. It also opens more options for potentially renovating spaces into industrial properties.

The tenant-property manager relationship in the industrial sector is evolving. It is becoming more hands-on and tenant oriented. Property teams will need to strategize about staffing and culture as we shift to a new tenant experience. And with that, we must work more so as a conduit for consultants to review and evaluate both the short term and long-term impacts of our tenant’s needed modifications to the building. While also maximizing the building’s future use capacity. Finally, we are going to see more sustainability initiatives in the industrial space. Since 2018 Duke Realty has had a dedicated focus on ESG. In 2019 we released our first Green Bond to support the development of LEED certified buildings, understanding the opportunity for sustainability initiatives through solar, lighting and metering projects. We are also working to understand our tenant’s sustainability goals and find ways to incorporate them into building design and operations. There is a lot of potential on industrial properties from both major sustainability change and everyday environmental practice.

The industrial commercial real estate arena is on the precipice of change along with the rest of the world. It is the engine for how we shop, work and supply. As the industry continues to grow, it will be up to property managers to discover new forms of efficiency, sustainability and tenant relationship.

About the Author

Natalie Tyler- Martin is VP- Regional Asset Manager with Duke Realty Corporation where she oversees the Property Management group and operations for the more than 21 million square feet industrial in Atlanta, Raleigh and Savannah. She is an active member of the Building Owners and Managers Associations (BOMA) of Georgia where she serves as President. She is a member of Commercial Real Estate Women (CREW) of Atlanta and 2016 CREW Atlanta Leadership Class. She serves as the Board Chair for the Aerotropolis Atlanta CIDs- Airport West, on the Board of Directors for the Atlanta Aerotropolis Alliance and WellStar Atlanta Medical Center Regional Health Board.

REPAIR. RESTORE. PROTECT.

Engineered Restorations is a specialty contracting company delivering restoration, repair, waterproofing, and protection delivering restoration, repair, waterproofing, and protection services for structures of all types.

STRUCTURAL REPAIR | RESTORATION | WATERPROOFING | PRESERVATION

225 Buford Drive, Suite A, Lawrenceville, GA 30046 770.682.0650 | er-inc.net

Thank you to our BOMA Georgia Foundation Donors

Since the Foundation was created in 2014, it has awarded nearly 500 scholarships to individuals seeking a certificate or professional designation in real estate. The Foundation has also produced over 12 research projects and white papers, all designed to give real estate owners and managers new tools to add value to their properties.

INDIVIDUALS Associate

Individual donors who have given $100-$199

Barbara Muck Bo Reddic Florence Barbour Fred Rodriguez Gina Dodson Grace Meyers Hal Moore Jenifer Wright Kevin Brady Leigh Ann Gantt Linda Beauchamp Marie Worsham Michael Knox Michael Valenzuela Miller Getz Patricia Brown Robyn Shaw Roni Page Sarah Francis Scott Baker Tammy Weeks Tiffany Wilson Vontreale Terry

Bachelor

Individual donors who have given $200-$349

Aaron Moriarty Amanda Madrid Andrea Allen Billy Gray Chonte’ Martin Christopher Allen Elaine Bare Jacob Wilder Kinsey Hinkson Laurie Harper Michelle Voelpel Stacy Abbate Tim Barton

Master

Individual donors who have given $350-$499

Christine Bailey Ian Hughes Judi Clements

Doctorate

Individual donors who have given $500-$999

David Hofstetter Mark Gallman Natalie Tyler-Martin Shawn Benjamin

Post-Doctorate

Individual donors who have given $1,000+

Dusty Muck Gabriel Eckert Mark Dukes Melody Frcek Orlando Ojeda Patrick Freeman

COMPANIES Associate

Last updated on 8/30//2021

Company donors who have given $500-$999

Allied Universal Security Services America’s Capital Partners Arborguard Atlanta Property Group Banyan Street Capital BMS CAT of Georgia Brand Real Estate Services

Capital City Mechanical Services Capital Restoration CapRidge Partners Colliers International

Cushman & Wakefield

Empire Roofing Engineered Restorations Environmental Service Partners Georgia Paving Gray Contracting Highwoods Properties Lillibridge Healthcare Services Madison Marquette Mayberry Electric, Inc. OA Management Parker Young Construction/RESCON Physicians Realty Trust PM&A

Pope & Land Enterprises Prologis Russell Landscape SERVPRO of Decatur

SOLID

Epic Everclear Enterprises Full Circle Restoration, A Cotton Company The Morley Companies The RMR Group The Simpson Organization

Bachelor

Company donors who have given $1,000-$2,499

Master

Company donors who have given $2,500-$4,999