The Challenges Facing The Future of Industrial Development
April 2022 / By Emily Walker, Matthew Goelzer, David Schmitz, Derrick Kent, Isaac Perez
Driven by consumer trends and amplified by the pandemic, the need for industrial warehousing and e-commerce distribution centers is skyrocketing. While demand continues to heat up, however, the industry is facing numerous challenges that many developers and brands are unprepared or unsure how to navigate.
Designing and developing in industrial for decades with numerous long-term partners, MG2 has paid close attention to the shifts in market trends and the challenges they’re unearthing. This year at ICON West, members of our team had the pleasure of meeting and hearing from some of the industry’s brightest minds, understanding the hurdles industrial as a whole is facing today, and analyzing how we can anticipate and help our clients continue to navigate them as we have for decades. Here are our top three takeaways:
1. Today’s delays in the supply chain are affecting tomorrow’s industrial real estate demand.
Over the past few years, spikes in material costs and supply chain issues, coupled with labor shortages have increased the cost of construction in all market sectors, industrial included. These major shifts, in addition to driving up prices, have also had an impact on completion schedules, drawing out completion deadlines well past their intended dates.
With these challenges not dissipating any time soon, companies are searching for ways to keep their products in the mainland United States, relying less on offshore storage of goods. The exhaustive quest for “future-proofing” from the industry’s current situation is not unwarranted: In December 2021, 49% of the containers in the Port of Long Beach simply sat there.
But as they say, “crisis brings opportunity”, and with the huge need and demand for industrial warehousing and e-commerce distribution centers to be on U.S. soil, an opportunity is exactly what the industry is experiencing. Once a “warm” market with inexpensive and average length leases, competition has surged with industrial real estate becoming hotter than multifamily houses in some areas of the country. Today, the race to find available land to build on is faster than ever. With costs increasing and longer leases locking down availability, developers have an urgency to act fast or risk losing sites. A lack of movement or even hesitation for too long can cost companies in the long run.
2. Future EV adoption is critical, but we can’t get there without infrastructure investments.
While industrial real estate and the supply chain for materials to bring warehouses together continue to pose challenges for developers, they’re only half the battle in the war for getting consumers their goods. The future of last-mile delivery is being fueled—or charged—by electric vehicles and trucks. However, in order for these EVs to truly gain traction, drivers need access to lightning-fast charging stations as conveniently as they’re able to access gas stations across the country. Today, these charging stations are expensive to install and can take a toll on cities’ grids, particularly in more rural areas.
The main crux of electric vehicle adoption in our supply chain is a collaboration between utility departments, jurisdictions, governments, EV manufacturers, and charging station companies. The good news is, solutions are already underway. Hundreds if not thousands of rapid charging stations—ones where vehicles can charge in 15 minutes as opposed to an hour—are already in progress being built across the country. With this more robust infrastructure, we could see game-changing advancements in industrial operations in just a few short years.
3. Don’t overlook investments in community and sustainability.
The final piece of the puzzle to helping unlock the future of industrial lies not in the hands of governments, companies, or developers, but in the hands of the communities where industrial real estate is looking to set up shop. Pushback from local neighborhoods over concerns of traffic, noise, and potentially a loss of tax dollars are becoming more prevalent, while simultaneously viewing this “increase in jobs” as perhaps not the “right kind” of local jobs for their community.
Human-centered conversations and truly understanding the concerns of those opposed to industrial development are a necessary first step, but sustainability also plays a role in improving our discussions with communities. While most developers these days are pursuing LEED certification for all of their projects, the integration of EV capabilities into facilities and other sustainable initiatives that benefit both company and community can shift the viewpoints of local stakeholders.
With decades of industrial architecture and development at our backs, our teams have worked diligently to help our clients navigate the ever-shifting tides and complexities that come with bringing industrial warehousing and e-commerce distribution centers to life. While we can’t be certain what the future holds, we know we’ll be ready for whatever comes next.