Industrial to Stay Strong as U.S. Enters Recession This Quarter, Economist Says

More than 1,200 leaders from around North America gathered to hear updates and projections for commercial real estate’s hottest sector at NAIOP’s I.CON East industrial real estate conference in Jersey City, N.J.

The sessions kicked off with an economic forecast from Dana M. Peterson, chief economist and center leader, economy, strategy & finance, The Conference Board.

“We’ve been modeling for the U.S. to enter recession this quarter for the last year now,” she said. She explained what a recession would look like, emerging economic trends, and their implications for industrial real estate.

“The Conference Board’s Leading Economic Indicator has been signaling a recession for the last year starting in the second quarter. If not this quarter, then next quarter,” said Peterson. The Board expects three quarters of negative GDP, or reduced U.S. spending, before returning to growth. Despite recession, Peterson anticipates a limited impact on the labor market. “Unlike the Great Recession or during the pandemic, the economy will likely only lose 1 million jobs,” explained Peterson, causing unemployment to rise from 3.5% to 4.5%. This level is still considered full employment, and thus why it would be regarded as shallow.

Overall at I.CON East, despite talk of a looming recession, of consumers resuming their pre-pandemic ways and a general cooling off, the industrial sector seems as hot as ever – and the large crowds networking indicate that deal-making is ongoing. 

In her commercial real estate outlook, Peterson said, “Industrial is a great sector because the country needs big spaces for reshoring and nearshoring of our manufacturing.”

I.CON East speakers also shared their perspectives on how industrial real estate will evolve to meet the changing needs of the consumer, post-pandemic. 

Matt Brady, LEED AP, architect and executive vice president, Ware Malcomb, gave an overview of his futuristic vision of a multilevel, sustainable warehouse that can serve urban communities. 

Ware Malcomb reached out to partners in the business to help provide insights and flesh out the idea. Namely, DH Property Holdings, “which already designs innovative industrial buildings;” JLL, which offered some perspectives on the tenant side; Parkmatic, a specialty parking company; Suffolk Construction, which helped price the project; and Aquiline Drones, which provided intel on the future of drone delivery and handline.

In Ware Malcomb’s design, goods will come in from trucks through a dedicated inbound lane. As vehicles arrive, they will be synchronized with the needs in the facility, as every vehicle will be tracked in real-time. Truck trailers would be transferred to driverless electric “yard hogs” that would be choreographed using digital technology to move the trailers safely and efficiently.

The building would utilize a super-tall racking system with integrated machine learning and AI, so that for every good that enters the facility, the system knows exactly where it is and where to shuffle it so that it’s easily accessible at the right time.

“In many buildings, you’re feeding goods in on the ground floor, and then everything is going up and then coming back to the ground floor, so the ground level can be a pinch point in the whole flow of the goods process,” Brady pointed out. In their design, instead of goods being delivered to one level, they can now be delivered to three of the upper material handling levels, and it’s a one-way flow. “With three levels of packing and material handling, we’ve actually tripled the outbound, which is a gigantic improvement.”

A typical day for an employee might look like this: the building system would know, based on the employee’s phone, that they’re arriving at work. A fully loaded delivery vehicle would be delivered to the ground floor, where the employee will park their car, get into the delivery vehicle, and start their route. The employee completes their delivery route and drives back to the facility. Again, the system knows they are arriving and prepares a new, fully loaded delivery vehicle so it is waiting for them, with a vacant spot nearby. The employee parks the now-empty vehicle in the vacant spot, moves into the new vehicle, and starts their next route.

On a hypothetical 4.6-acre site, the conventional warehouse would be able to fit about 12,000 pallets. Multistory can fit 27,000 pallets. In the logistics building of the future, that jumps up to 36,000 pallets. The number of dock doors also grows: 22 on a conventional building, 28 on a multistory building, and 93 in the building of the future – 33 inbound and 60 outbound dock doors.

Another panel, moderated by James Geshwiler, co-founder and chief strategy and investment officer, Catalyze; with Alicia Case LEED AP BD&C, WELL AP, SITES AP, Fitwel Ambassador, LFA, Southeast region lead, sustainability, JLL; Nicolette Jaze, head of sustainability, Galvanize Climate Solutions; and Shelah Wallace, director, originations, Nuveen, made the case that when it comes to sustainable design in warehouses, the future is now.

An increasing number of investors are requiring sustainability and tenant demand is growing stronger, yet there is an underwhelming amount of sustainably driven industrial building stock available. Companies that have announced commitments to sustainability and have to execute them want to move into buildings that have been developed to support their goals without incurring any additional costs. Low vacancy rates plus high demand means that nearly everything under construction is immediately leased at delivery.

“Our clients come to us and say we’ve made this commitment, now how can we figure this out?” Case said.

“More investors are requiring that developers are sustainable in some manner. For a lot of the retrofits, it’s a requirement from the investors,” Wallace added.

In fact, the panelists said, to look at the future, first look at Europe: The most sustainable industrial sites are in Europe, thanks to their strong commitment to energy reduction, on-site energy production and water resources. Attracting and retaining workforces in Europe remains a challenge, so industrial properties are investing in health and wellness features including ventilated spaces with plentiful daylight, physical activity areas and childcare facilities.

Kathryn Hamilton is Vice President for Marketing and Communications for NAIOP.