CBRE’s latest “Warehouse Sentiment” survey – published in tandem with the company’s US Industrial Real Estate Transactions and Pricing Report – seeks to gauge property owners’ views on their future income. CBRE found that while industrial tenants and owners in the U.S. and across the globe are increasingly relying on outsourcing, drivers for the demand for large-footprint locations are still present.
The statistics – based on more than 10,000 private company responses – suggest that tenants are looking to outsource, but at a sustainable level. This means that landlords and tenants still view each other primarily as “partners” in a relationship that is mutually beneficial – not just on a transactional basis. While smaller industrial tenants would rather keep their assets in-house to make efficiency gains, large tenants are prioritizing employee retention and training.
For large companies, many “are eyeing 10 years of average portfolio growth and a potential 40 percent, 35 percent or 35 percent increase in location utilization rates and asking new owners, ‘Why would you want to build from scratch or acquire buildings when we can outsource the work to a third party?’” Paul Dykeman, Director of CBRE’s U.S. Industrial Property Office, told Nucleus that the survey results are “no surprise: Carrying out of-house is favored over buying, but there is a bit of a chicken-and-egg problem: Large tenants want to outsource, yet cannot find a reliable third party service provider.”
CBRE also found that tenants are increasingly “phasing out” the integration of warehouse facilities into communities and given their concerns over labor shortages and high wages, they are looking to scale warehouses to their own, “edge-out” scaleable infrastructure.
This makes sense, as CBRE suggests that many large manufacturers have themselves maxed out on labor and suppliers and may need to invest in property to help facilitate their supply chain – from so-called “off shoring” to warehouse supply chain management solutions. Another driver for “offsetting infrastructure costs,” Dykeman said, is the expansion of third-party leasing organizations. It is worth noting that this has not been limited to industrial but now extends to office, retail and food and beverage sectors.
While CBRE forecasts that 2019 will continue to be a “supply limited” market, Dykeman believes that market trends are causing manufacturers and landlords to consider “trade-off.” Trade-off he means that landlords may share the infrastructure burden of a warehouse with a tenant, rather than spend money acquiring it from a third party. The cost savings would accrue to all parties but benefit larger tenants, as their warehouse storage can also be used to grow their existing facilities.
While developers and tenants are increasingly open to trade-off, CBRE notes that “market dynamics” are allowing for downward pressure on warehouse rents. Dykeman wrote that by focusing on the intersection of “service supply” and “service demand,” the construction industry is “leveraging the investment that has already been made in logistics and distribution infrastructures.” In these conditions, Dykeman notes that industrial buildings may well come to resemble the office space of old.
Read the full story at Nucleus and Greenwire.
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