Amazon and Walmart's Giant Impact
You're not imagining things: There are a lot more cranes dotting the industrial landscape within a two-hour radius of Philly. Total development in our region was second in the country only to LA, we learned at last week's second annual Bisnow Philadelphia Industrial Summit.
The big reason, posits CBRE EVP Mike Hines (right, with Liberty Property Trust SVP Jim Mazzarelli and Duke Realty's Tim Hoffman) is strong e-commerce. Online retailers like Amazon and big-box stores like Walmart aren't just picking up more warehouses in Eastern PA; they're getting bigger. (They need warehouses for all the stuff we're gonna buy and put into self storage.) Mike says proximity to FedEx and UPS is a must, and accommodations for heavy equipment like sort facilities require thicker floors and steel. Speaking for Liberty Property Trust's expanding Lehigh Valley presence, Jim also sees increased clear heights and higher parking capacities (especially for seasonal employees) at the facilities they're developing.
Our panel: Prologis VP Bo Farkas, Endurance Realty prez Ben Cohen, Jim, Tim, Mike, and Drinker Biddle & Reath's Chris Boyle, who moderated. Eastern PA looks like a steal compared to the highly competitive gateway market of Northern NJ. But now everyone wants in, and warehouse rents have jumped. Duke Realty's Tim Hoffman, who's new to Philly, says that there's way more capital than construction, and getting money out the door is a task when seeking to acquire core product. A plethora of equity capital especially, says Endurance Realty prez Ben Cohen, makes it hard for developers to find allocations they like. Nationwide, there's still a big gap between Class-A and Class-B, although cap rates overall this year have been at their strongest since 2006.
Chris asked the panel about the environmental impact of all those warehouses and trucks. Bo (left, with Ben) says transportation accounts for roughly 50% of supply chain costs, so there's a need to be close to customers. Other cost-cutting measures include using build-to-suit developments instead of pricey tenant improvements. Jim also points to rail expansion by Norfolk Southern as an option retailers are using to cut back on truck mileage (and thus cool CB radio handles). Meanwhile, Ben wonders if more retailers will locate in smaller buildings near population centers to ensure same-day delivery.
Of course, no discussion of industry is complete without the Navy Yard. Philadelphia Industrial Development Corp SVP (and keynote) Will Agate says positive forces are in play for Philly's one-time and future industrial zones. The Navy Yard is at 10,000 jobs with the arrival of GlaxoSmithKline, and Aker Shipbuilders has full orders through 2018. At the Navy Yard's eastern end, the Philadelphia Regional Port Authority is developing the Southport Marine Terminal. Tomorrow, the Mayor's Task Force on Manufacturing will release its findings on how to maintain the robustness of the industrial sector.
We snapped our sponsor Bohler Engineering's Mike Jeitner, Jennifer Gradel and Buck Collins. Bohler has worked on over 20 industrial sites in PA totaling 4M SF. In addition, Bohler's NY, NJ, and Mid-Atlantic regions are active in the industrial market and have designed distribution centers for clients like Anheuser-Busch, Costco, and FedEx. Buck says Philly is looking far from rusty with lots of retail activity and prospects for greater port traffic with the Delaware River deepening.
Many youngsters use their garages to start bands; others use them to start roofing businesses. Clients of DDP Roofing (its Dan McCaffrey snapped here) are thankful their founders went the latter path. Started in 1989, the Glen Mills company has developed into a commercial roofing provider with serious East Coast presence.
Along with Ben, Endurance CEO William White (left, with CBRE VP Vincent Ranalli, McGowan Advisors prez Kevin McGowan, and CBRE VP Jake Terkanian) came along to promote the Bala Cynwyd company's activity in the area, including the industry-heavy I-78 and I-81 corridors.
