On Wednesday, May 13th we had thoughtful conversation with a group of all-star panelists from various areas of industrial real estate. This event was supposed to occur live in March right around the time of the Coronavirus shut down. The past two months have accelerated many of our panelists’ businesses much further into the future.
- Jeff Hoffman, Cushman Wakefield | Boerke moderated the conversation with
- Rita Williams, Director of Economic Development, Kroger
- Rob Damrat, Senior Vice President, Link Industrial
- Jamie Hess, VP of Supply Chain Solutions, WOW Logistics
- Tricia Braun, Director of Client Strategies, JP Cullen.
To view the entire webinar click HERE!
Key program highlights are below:
In 2018, Kroger established a strategic partnership with Ocado, a UK based online grocer, expanding into the US. Rita Williams indicated that the COVID-19 crisis has changed how American’s shop. The use of online shopping apps has increase by 20% in the last two months. Kroger is dedicated to providing long-term sustainable solutions to servicing customers through their partnership with Ocado. Home delivery in grocery is relatively new and COVID has escalated this business two years ahead of where they expected it to be. Kroger has broken ground on a 350,000SF fulfillment center in Pleasant Prairie, Wisconsin which will be part of an eventual network of 20 Ocado partnered fulfillment centers across the U.S. See video of Ocado technology HERE.
Link Industrial, the second largest industrial owner in the US has grown at breakneck speed. At the end of February 2020, Link acquired a 3.7 MSF portfolio in Wisconsin that immediately made them one of Wisconsin’s largest owners of industrial real estate. While overall new activity has slowed, there are positive signs emerging within their existing portfolio. Since March 1st Link Industrial has completed 400,000 SF of leasing transactions throughout Wisconsin and Illinois, which is comprised of approximately 35MSF. They are also actively working on an additional 2MSF of renewal/new transactions with businesses that have not put their real estate decisions on hold due to COVID-19. When asked about the question of rent relief for challenged tenants, Rob Damrat suggested that Link has a thorough process for evaluating rent relief including a detailed questionnaire, financial review, questions around PPP applications etc. Damrat believes that landlords should be working to turn rent relief discussions into an opportunity to partner with tenants as they navigate through Covid-19 together. Damrat encouraged tenants and brokers to approach landlords with a solution-based offer in the event rent relief is needed, whereby adding term to the end of the lease, in exchange for rent relief today, could help pave a path forward.
WOW Logistics is still actively designing two 100,000SF buildings in Wisconsin. They are experiencing a lot of movement with many customers (especially in the dairy industry) needing more space freezer/cooler space. Jamie Hess mentioned that a big operational focus has been on keeping people healthy in order to keep things flowing through the supply chain. Food-grade space (cooler and freezer) is and will continue to be in high demand. These spaces are expensive to construct and operate; but Jamie believes that there will be many businesses seeking long term partnerships for these types of facilities. She is already seeing customers willing to commit to longer terms as they realize the importance of efficient food service distribution and diversification.
Tricia Braun at JP Cullen said that most projects are still moving forward, and some projects have actually been accelerated. Tricia believes that as we emerge from COVID-19, there will be many more manufacturing projects discussed that will be designed to increase production with a heavy focus on automation. Tricia’s prior background as COO at WEDC provided unique insights to the challenges of the labor market. When the panel was originally scheduled, the unemployment rate was 3.5%. While unemployment has spike to unprecedented levels, Tricia feels it is important to not lose sight of the longer-term labor concerns surrounding aging workforce and skill development. She suggested that employers must use this time (COVID-19) to prepare for the future. Asked about construction pricing, she suggested that material costs may decrease, but overall cost is likely to remain relatively stable because of how tight the construction labor market is. Tricia suggested that we may see ‘onshoring’ or a move to bring business operation that was moved overseas back to the United States.
What does the future hold as we look to 2021?
The panelists agreed that we may be looking at a technology revolution that changes all of our workstyles. There will be an increase in technology and the data around transportation and how goods are moved through the supply chain to the consumer. People will continue to innovate with technology to limit in-person interactions for the foreseeable future. In terms of real estate, there continues to be a great deal of uncertainty. Buyers and sellers can’t agree on prices, and it is very difficult for a business to commit to any type of long-term capital expenditure. Transaction volume will likely be reduced in 2020 as the business community looks for the economy to stabilize.
The bright spot in the industry?
Grocery fulfillment, food production & distribution, and eCommerce will continue to boom, which will result in Industrial Real Estate emerging from this recession as the most resilient and desirable asset class in commercial real estate.