TORONTO—While many of the discussions at last week's NAIOP Commercial Real Estate Conference in Toronto understandably sought to illuminate the role Canadian real estate companies play in the US market, other sessions tackled issues of interest to the entire commercial real estate world. On Wednesday afternoon, for example, the organization brought together a group of industrial experts that examined where things stood for that sector throughout the globe.

Gordon Cook, an EVP with Colliers International and the moderator of this discussion, began by asking whether or not new development in today's market is keeping up with the level of demand that returned with the recovery.

“We like to offer our clients three options,” said Scott Lyons, senior director at Exel, a leading logistics and supply chain management firm based in Westerville, OH, but these days that's tough to do, with so many new sites getting snapped up as soon as they become available. “We find the market is constrained.”

That sentiment was echoed by others on the panel, including the developers. Richard Strader, SVP of Prologis, brought out some historical data to illustrate the current state of the market. “There were some pretty notable differences,” he said, between 2007, when the companies that now form Prologis had in the Americas about 20 million square feet of new construction starts, and 2015, for which the company now forecasts that starts in the region will total about 13 million square feet. And the amount of spec space has also declined, from about 83% in 2007 to 62% for this year.

And the data show that the demand is there. In 2007, Strader said the companies' roughly 460 million square feet of space was not quite 96% occupied, whereas in this year's second quarter the post-merger firms' 670 million square-foot portfolio was 97.4% occupied.

Matt Mullarkey, the senior vice president for strategic projects and planning at CenterPoint Properties, said that back in 2007 his company was “known as Chicago sharpshooters; our worldview was a little limited.” But since then CenterPoint has launched new development in a wider array of metro areas, including Kansas City, Seattle, Los Angeles, Houston and others. And its numbers generally mirror those of Prologis, with a 95% occupancy and a similar build-to-suit vs. spec ratio.

Strader added that in today's environment, with capital for new development harder to come by, the builders that will succeed are the ones with ready access to manpower, land and have the scale and ability to invest upfront. Those “are the ones that are going to carry the day.”

The panelists then turned to what factors were influencing where new developments were located. Cook asked Mullarkey why the company—which specializes in properties at vast intermodal logistics centers such as its flagship property in Joliet, IL—considered transportation factors so important. “Transportation is a bigger cost than rent,” he replied. With so many clients emphasizing speed-of-delivery, intermodal centers “really offer a value proposition in the form of savings.” This offers great opportunities for landlords, since tenants that have the versatility they need “are less sensitive to the rent.”

The rise of e-commerce and the need for quicker delivery has changed many of the calculations that once went into site selection. The new distribution centers need more employees per square foot, and this means developers need to be more cognizant of a given area's labor supply. “For us, interstate access and the availability of labor is what's most important,” said Prologis' Strader. He added that clients' human resources officials recently became key decision makers it comes to choosing a distribution site, and developers have to be ready to provide answers about the size of an area's labor pool and its ability to access a new building. “Five or ten years ago, that HR head did not have a voice.”

Benjamin Conwell, senior managing director and practice leader for e-commerce and electronic fulfillment for Cushman & Wakefield, also voted for the availability of labor as the most important factor. He believes that developers and institutional capital need to make sure to update their methods for evaluating the ability of an area to supply the dense network of employees needed for modern distribution buildings rather than “applying the old metrics and believing that there is going to be enough labor.”

“It's all about efficiency and getting more product out the door,” he added. For that reason, he is also a big believer that taller is better. “40' clear is where we're going to be in ten years; its where you should invest now.”

That opinion got a lot of support from the panel. Strader pointed out that it took many years for the standard heights to increase from the twenties up to 32', but it was just 18 months ago when many started touting 36' as the new standard, and now 40' clear heights have entered the conversation. He does sees reluctance from many clients who say they don't want to pay for 40' clear buildings. Still, he also believes that “40' is the future.”

But he cost of insurance, additional sprinklers, more training for employees, and other expenses should not dissuade operators, said Lyons, when balanced against the greater efficiency and capacity of the 40' building. “We pretty much find that the taller building pays for itself.”