• McCausland

Industrial Real Estate and the “Last Mile" - A Discussion with John Gartland of Cushman & Wakefield



Take a look around, and you’ll notice industrial real-estate properties are being bought up all over the place. With the explosion of e-commerce, it's no surprise. The pandemic has cemented e-commerce as a way of life for many. Consumers today expect their purchased goods to arrive at their doorstep within just days of ordering with no added shipping costs. It’s no wonder large industrial buildings are “hot” pieces of property. While some are being used for big-box distribution, others are being leased by retailers as “last mile” facilities.


What does “last mile” mean? For answers and insight into this exploding market, we turned to John Gartland, executive director at Cushman & Wakefield. Here’s what he had to say:

 

Can you explain the concept of “last mile”?


John: Logistically speaking, the term “last mile” refers to the closing stretch in the supply chain. It’s the final leg of the journey a product takes from its point of origin to where it is finally delivered to the customer. Like the name suggests, last-mile industrial properties are the final stop for deliveries before they head off to the residences and offices of recipients. Driven by proximity to the end consumer, last-mile facilities are located within the urban core or strategically placed in high-density areas to reach the maximum population.

 

What’s happening in the Greater Philadelphia region?

John: There’s an enormous number of large industrial development projects underway in the Greater Philadelphia region. One major example is the Bellwether District in Philadelphia. Hilco Redevelopment Partners is turning this former Philadelphia Energy Solutions refinery into a 1,300-acre, state-of-the-art campus focused on the development of industrial and life sciences.

Another example is the former US Steel manufacturing facility located in Fairless Hills, PA, now known as the Keystone Trade Center. Being developed by Missouri-based NorthPoint Development, the site spans over 1,800 acres and will accommodate over 15 million square feet of bulk industrial development.

We’re going to see continued development throughout the region that also incorporates the redevelopment of office buildings, retail malls and older manufacturing plants. These types of property classes typically offer direct proximity to highways, which is a main driver for industrial.

 

Let’s talk supply and demand. What’s happening in the industrial market?

John: As has been the case for several years now, active tenant demand in the market is far outpacing delivery of supply. When we look at the development pipeline, there’s ten times the amount of tenant demand than space available. As such, industrial rents have grown dramatically in this region, and we expect this trend to continue. Developers are continuing to build speculatively with the majority of projects pre-leasing prior to construction completion.

To give a flavor of how active the market is, most developers are now waiting until the building gets closer to delivery to respond to RFP’s. This tactic is in an effort to take advantage of the rental growth and not agree to terms too early in the deal cycle.

 

What is shaping the design of new class A buildings being delivered in the market?

John: The overall size and profile of industrial buildings has changed dramatically. Material handling equipment, robotics and logistics decisions are cultivating the design of these assets. E-commerce continues to grow. Inside the walls of buildings, things are becoming extremely advanced in the way of robotics, conveyors, multi-level racking, etc. What’s going on inside the big box is driving other elements – like loading dock ratios of dock doors, trailer parking counts, and very importantly, power. To run a building of this sort demands an enormous amount of power.

 

What other types of trends are you seeing?


John: Everyone is familiar with the continued growth of e-commerce. This trend is here to stay. Outside e-commerce users, another growing trend is in cold-chain logistics, or the transport of temperature-controlled goods, like foods, beverages and even bio-pharmaceutical products. The PhilaPort plays a major role in the growth of cold chain logistics in this particular region.

Given how tight the market is, there’s also incredibly high demand for developable land. In the Greater Philly region, developers are ideally seeking sites within close proximity to the 95 corridor. We're staying very busy throughout Southern NJ, Northern DE and Southeastern PA in trying to identify land sites for our clients. The Greater Philly market is strategically located in between New York City and Washington, DC, making it a very desirable location from an industrial user perspective – strong labor pools, dense population and regional highway access are all key factors in the region’s continued growth.

 

What else do you envision over the next several years within the industrial market?

John: E-commerce will continue to drive regional demand for big-box development. Also, last-mile industrial development and urban infill will become increasingly important. You can also expect to see an uptick in multi-story warehouses and more conversions from retail and office buildings to industrial and distribution spaces. Advancement in material handling equipment and technology will also continue to play a key factor in the design and layout of these facilities.

 

McCausland thanks John Gartland of Cushman & Wakefield for sharing his knowledge and insight into the industrial real estate market.