Pete Quinn

Gyms. Basketball courts. Larger lounge areas. Game rooms. These are some of the office-like amenities that distribution centers have begun adding to their facilities in order to compete in a tight labor market, according to Pete Quinn, Colliers' National Director of Industrial Services-USA.

To be sure, such offerings are not the norm among fulfillment centers. It is more likely that a distribution center or warehouse will install much-desired air conditioning or at least more fans to attract and retain workers. But that said, there is a clear trend among developers and owners to upgrade their facilities to keep their workers happy. “At least half of the clients we are dealing with now are putting in some sort of amenity that wouldn't have happened five years ago,” Quinn tells GlobeSt.com. “Anything they can think of to keep the labor, they are putting into their facilities right now.”

Countering the Costs

And of course these facilities are doing the obvious as well: raising wages to remain competitive. “You can make a lot more in a distribution center now than you could even a year ago,” Quinn says. These rising costs have the potential to significantly erode company margins — an actual building is typically 4% to 6% of a company's supply chain costs while labor is significantly higher. So far, though, the ROI on these investments have penciled out. “You also have to look at the cost of replacing labor,” Quinn says. “If you've got 20%, 30% turnover, that can be a significant expense.”

The rising labor costs, though, are causing developers and owners to re-evaluate longer term plans, such as where to site new distribution centers. It used to be that transportation costs and how efficiently a location could deliver product to market were the main decision drivers, Quinn says. Now, more so than ever before, labor costs are also being factored into the decision. “A lot of tertiary markets all of a sudden are seeing million square foot distribution centers come to town,” according to Quinn.