ICON'18 Panelists: As Distribution and Retail Sectors Converge, Industrial Demand is Outstripping Supply
Prologis Looking to Amazon, Autonomous Vehicles and Other Disruptors
An I.CON panel on Thursday included (pictured, left to right): Moderator Erik Foster, principal, leader of industrial capital markets, Avison Young; Jim Clewlow, chief investment officer for CenterPoint Properties; Jay Cornforth, managing partner of Brookfield Property Group; Marshall Loeb, chief executive of EastGroup Properties; Amy Curry, regional director of GLP; and David Levine, managing director of Blackstone Group.
The demand for industrial space is outstripping the supply, driven by the convergence of the retail and distribution real-estate sectors, according to speakers at a conference that brought executives from around the country, and the world, to New Jersey’s Gold Coast.
The first day of I.CON’18, an industry conference focused on the industrial property sector offered panels that brought together officials from the biggest players in the industrial real estate market like Prologis, as well some of the largest U.S. retail landlords like Brookfield Property Group, to talk to an upbeat group of more than 850 conference attendees.
The two-day event, which was sponsored by NAIOP and the Society of Industrial and Office Realtors (SIOR), was sold out, “clearly an indication of how hot the sector is," noted NAIOP President and Chief Executive Thomas Bisacquino.
The ballroom at the Hyatt Regency on the Hudson River waterfront in Jersey City, NJ, was packed as keynote speaker Gary Anderson, Prologis chief executive for Europe and Asia, offered his outlook for the industrial sector globally and nationally. The company’s portfolio is 64 percent in the Americas, 27 percent in Europe and 10 percent in Asia.
Anderson was the first one to address the theme of the day: how consumer shifts to online shopping rather than brick-and-mortar, and their desire for swift delivery, continues to fuel the demand for warehouse-distribution space.
“Commodity retail, sorry, is dead,” Anderson said. “I think that has been supplanted by industrial, in my personal view.”
Traditional retail’s opportunity now is to create experiences for consumers, according to Anderson.
Prologis is the leading landlord for one of retail’s biggest disruptors, Amazon.com, which is the developer’s single largest customer, Anderson said. He described the e-commerce behemoth as “maniacal” about customers and customer satisfaction, testing new models every day and taking a lot of risks.
During several of Thursday’s panels, real estate officials echoed Anderson’s remarks that the need to be close to consumers, to enable faster delivery, has transformed industrial real estate – warehouses and distribution centers ‐ into a retail business.
“You can’t have your product a three-day drive away. It’s all about getting closer and closer to the customer,” Anderson said, adding that in this environment, supply-chain decisions have become a strategic part of businesses.
At one panel, Jay Cornforth, Brookfield’s managing partner and global head of industrial, said that the sea change in the retail world presents new vistas for that real estate space.
“I can tell you we are advising Macy's on their supply chain and their stores in terms of how you might redevelop those stores,” he said. “There is no doubt that there is opportunities in their retail space to higher, better use. The way we look at retail is yes, we accept it’s changing, but well-located retail, particularly in malls that we own, will continue to have a great future.”
The participants at Cornforth’s panel “Insights into Global Capital Flows” agreed that the hot industrial market, particularly in areas like the New York metropolitan region, especially North Jersey, showed no signs of slowing down. In fact, it’s hard to find land or properties to acquire in the sector, which is why Center Point Properties is doing more redevelopments, according to Jim Clewlow, its chief investment officer.
“We struggle to find development sites,” said Marshall Loeb, chief executive of EastGroup Properties. “I can’t imagine what New York is like [...] if you look for a good site in Dallas or Atlanta, they’re few and far between.”
He said he’s not worried that the industrial sector will fall out of favor, but rather that demand is outstripping supply.
In some markets, absorption is outpacing supply by 30 to 50 percent, according to Amy Curry, regional director for GLP.
Because of the spillover of demand for industrial space in North Jersey, Cornforth added, “You are seeing development now pushed down to almost Philadelphia, down to Exit 2 [of the New Jersey Turnpike].”
The growth of the industrial market in Lehigh Valley, PA, over the past 10 years is essentially an extension of the North Jersey market, according to Cornforth.
Mark Eppli (pictured, left), professor of finance and real estate at Marquette University, spoke to Gary Anderson (right), Prologis chief executive for Europe and Asia, about the industrial real estate market globally and nationally at the kickoff of I.CON'18 on Thursday.
Mark Eppli, a professor of finance and real estate at Marquette University, conducted the questioning of Prologis' Gary Anderson during the keynote presentation, and asked what kind of impact the development of autonomous vehicles would have on the industrial sector.
Anderson said there “are lots of implications to the supply-chain industry.” For example, driverless trucks could be on the road for longer periods of time than those manned by human motorists, whose hours are limited by federal regulations to ensure they have proper rest.
That could impact where regional distribution hubs are located, permitting them to be farther away than they currently are since autonomous trucks could drive long distances continuously, according to Anderson.
Eppli told the audience that a developer who is building a 20 million-square-foot facility in Wisconsin is planning to have an autonomous vehicle lane from General Mitchell International Airport in Milwaukee to its facility 20 minutes away, a route that would run from 11 p.m. to 4 a.m., by 2021.
The conference, which continues Friday, is being held by the national NAIOP organization in partnership with the New Jersey Chapter of NAIOP and SIOR. Dave Gibbons, chair of this year’s conference committee, is president of NAIOP New Jersey as well as president and chief executive of Elberon Development Group in Elizabeth, NJ. Attendees came from as far and wide as Brazil, Colombia, Mexico and "three from Hackensack" in New Jersey, Bisacquino joked.