What’s trending in industrial space? Automation in towering cold storage boxes

I’ve been a proud member of the Society of Industrial and Office Realtors since 2018.

The trade group’s semi-annual conferences are epic; the destinations are glorious; the education is unparalleled; and the networking unsurpassed!

A little background on SIOR: The organization has been around for 80 years, a global office and industrial real estate association. It has 3,900 members in more than 50 countries.

I returned from a spring’s gathering last week, and I’ve now had time to decompress and reflect on what I learned. This column will share some insights.

Industrial technologies

I spent time with industrial real estate brokers from around the United States and the world. One conversation was quite eye-opening.

We learned about the automated storage and retrieval systems, or ASRS for short. This high-tech inventory management system help a logistics provider to be more efficient and timely, requiring fewer employees.

Many in the cold storage space are using ASRS to more strategically manage their inventories. In one instance, an occupant called AmeriCold constructs their new buildings around such a system, and in many cases, they stretch 150 feet in height. To put this in context, that is approximately 12 stories high, and roughly four times the height of the modern concrete behemoths we see being erected in the Inland Empire.

Data centers, which power artificial intelligence, are springing up around the US, as well as chip manufacturing fabs, as they referred to.

The underlying challenge for industrial real estate applications is the acute need for power. Developers of these buildings seek power first and communities that can provide the power, as opposed to the cost of land under which the building is constructed.

A new concept called mini-grids is appearing around the nation. These systems are encapsulated power, serving a specific site with the juice generated by solar, wind or other forms of renewable energy.

Industrial roundtable

We heard from agents representing Mexico, Tampa, Florida, Atlanta, Georgia, Charlotte, North Carolina, Nashville, Tennessee, Dallas, Texas, Houston, Texas, Rotterdam, the Netherlands, Toronto, Canada, Laredo, Texas, Columbus, Ohio, Indianapolis, Indiana, and Los Angeles.

Curiously absent from this roundup was anyone from the middle part of the West, such as Denver, Salt Lake City and Phoenix.

Certain themes were repeated. Much like Southern California, large-scale inventory between 100,000 and 500,000 square feet has been dramatically over built, and therefore more supply than demand exists.

In buildings larger than 500,000 square feet, a shortage exists. And there is still quite a demand for large boxes. The most robust size range nationally are buildings under 50,000 square feet. Most mentioned power and the lack of a sustainable source as a future challenge.

All of the markets have experienced occupant demand waning as a result of inflation, higher borrowing rates and the exit from inventory after the Covid pandemic. The representative from Los Angeles opined that we are at the bottom in terms of rental rates as rents have decreased 30% to 40%.

He also echoed that 800,000 square feet and larger is a hot size range as well as buildings below 50,000 square feet. The Los Angeles ports are doing a record amount of business.

Third party logistics operators – or 3PLs – are renegotiating leases they originated in 2020, 2021 and 2022.

Finally, some local insurance carriers are requiring electrical panels be replaced in order to lessen the possibility of fire.

It’s very interesting to hear about the successes and struggles of other SIOR brokers around the nation. I’ll look forward, with great interest, to our fall conference, which will be a home game in Hollywood.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104.