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The Future of Industrial – Panelist Recap

Posted By Courtney Shipshock On June 8, 2020

The Commercial Association of Realtors along with The Society of Industrial and Office Realtors put together a panel with a variety of panelists from different areas of real estate. Our Director of Client Strategies, Tricia Braun, was one of the distinguished presenters speaking amongst representatives from Kroger, Link Industrial, and WOW Logistics.

Prior to her role at JP Cullen, Tricia was in economic development for the past twenty years. In November 2019, Tricia’s role was at the Wisconsin Economic Association where she was the Chief Operating Officer.

Fast forward to today, Tricia works to help our clients be more successful outside of construction whether it be preconstruction services or helping to identify resources to make our clients projects more feasible.

Below is a recap of the panel that CARW/SIOR put together with the highlights from the event. To view the event in its entirety, click HERE!

Key Program Highlights

In 2018, Kroger established a strategic partnership with Ocado, a UK based online grocer, expanding into the US. Director of Economic Development, Rita Williams, indicated that the COVID-19 crisis has changed how Americans 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-19 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 3.7MSF 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 has completed 400,000SF 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, Senior Vice President, 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. Vice President of Supply Chain Solutions, 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.

JP Cullen

JP Cullen’s Director of Client Strategies, Tricia Braun, said that most of their projects are still moving forward, and some have actually been accelerated. Tricia believes that as we emerge from COVID-19, there will be an increase in manufacturing projects designed to increase production with a heavy focus on automation. Due to her previous background as COO at WEDC,  Tricia 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, population declines, and need for skill development. She suggested that employers must use this time (COVID-19) to prepare for the future and help potential employees “pivot” in their skill sets.

Asked about construction pricing, she suggested that some material costs may decrease, but overall cost is likely to remain relatively stable because of how tight the construction labor market has been and potential impacts to supply chains. Tricia suggested that we may see ‘onshoring’ or a move for foreign companies to establish new operations in the United States, or to bring business operations that had been moved overseas back.

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.

Could you benefit from hearing more about our client strategies? Reach out to Tricia Braun directly at tricia.braun@jpcullen.com. We look forward to hearing from you!

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