Study: RFID Won't Hurt Net Demand for Industrial Space

SAN FRANCISCO-Within the last year, some analysts and industry observers have said that Radio Frequency Identification technology could substantially reduce demand for industrial real estate. “Unlikely,” says David Twist, director of research for locally based AMB Property Corp., a major developer and owner of industrial real estate that has just completed a study on the subject. RFID allows manufacturers and retailers to track their goods by labeling them with small wireless tags. The tags can be easily read with a scanner, which helps businesses closely monitor inventory from production to store shelf. The technology has garnered widespread attention, due in large part to Wal-Mart’s initial mandate that all major suppliers adopt the technology by January 2005 and Gillette’s reported purchase of 500 million units.Despite the concerns by some analysts that the technology will reduce inventories and, therefore, demand for industrial space, the AMB study finds that the fears are unfounded. “Our research indicates that RFID-generated inventory reductions will be more than offset by increases in SKU proliferation, shorter product life cycles, globalization and distribution outsourcing,” says Twist. “The net effect of RFID on the macro demand for occupied industrial real estate will likely be less than 1% of overall net demand.”The report points to the mid-1980s, when analysts said that new bar code technology and a host of other IT advances in the warehouse could substantially reduce demand for industrial real estate. “The opposite occurred,” said Twist. “Since 1980, occupied industrial space has increased 45%.”The report finds that broad-based implementation of RFID faces significant hurdles including a lack of global standards, multiple frequencies and specifications for tags, optical reader compatibility, tag cost, privacy issues, data sharing and security issues. On the upside, the report finds that RFID’s benefit to global businesses is profound, and that the technology should be in widespread use within the next five- to 10 years as it helps companies speed up warehouse activity and inventory turns, cut handling and transport costs and reduce theft and fulfillment errors.”RFID’s impact on logistics real estate will be less focused on reduction in space needs and more focused on driving efficiencies through configuration and design,” says Twist. “Look for increases in cross-dock facilities as goods move more quickly. Clear height will become less important, but layout of the storage and staging areas will be more important. Dock doors will become increasingly productive as trucks spend less time in loading activities.”AMB owns more than 104 million sf in the U.S. and worldwide. Its largest customers include FedEx, Deutsche Post, Ford Motor, Ahold NV and United Airlines. A copy of the report is available on the company’s Web site at www.amb.com, on the “Research Reports” page.