Industrial real estate market leaders from across the country gathered for NAIOP’s industrial event, I.CON East, in Jersey City, New Jersey, across the Hudson River from downtown Manhattan.
Traditionally, a lot of industrial real estate activity is focused on the East and West Coasts. However, one of the main takeaways from this year’s conference is that industrial real estate activity concentrated in the Midwest, estimated to be roughly $27 billion since the COVID-19 pandemic began, is changing the game. One panelist dubbed it the “Silicon heartland.” NAIOP announced that it will host a new I.CON next year in the central part of the country to focus on industrial activity in cities such as Columbus, Ohio; Chicago, Kansas City and Indianapolis.
At a panel discussion on the subject, a group of experts included moderator Scott J. Ziance, Esq., partner, Vorys, Sater, Seymour and Pease LLP, along with Michael Brazeal, development transaction manager, CenterPoint; Michael Copella, senior managing director, CBRE; Grant Goldman, executive vice president of development, Ambrose Property Group; and Phil Rasey, vice president of development, VanTrust Real Estate.
Along with the explosion in growth, the panel agreed that there are the attendant challenges of supplying enough energy and labor to meet the demand for each.
Meanwhile, another panel at I.CON East reported that investment demand on the East Coast is returning following a bottoming out last year.
Brandi Hanback, executive vice president, co-head of development and head of FTZ, trade & logistics, Rockefeller Group said new investors are emerging in gateway markets: “Things bottomed out last year, and I see investors moving this year to try to get ahead of the increasing momentum to get the best deals,” she said. “We’re hearing that imports are up over last year significantly, and that’s a leading indicator of a rebound.” She noted that operators want more space in more modern facilities, but the C-suite is slower to make that investment.
“So much product flooded the market in the last year it’s going to take time to absorb it,” said Stephanie Rodriguez, national director, industrial services, Colliers. “Tenants are staying where they are right now because their cost of capital is the same as the developers and investors in the room looking at their cost of capital to build. Our data shows we should reach equilibrium by end of this year.”
E-commerce giants Amazon, Walmart and Target are retooling their delivery strategies to meet customer expectations after strategies somewhat failed to meet expectations during the busy holiday season. A flurry of activity in big-box leasing has emerged on the West Coast and could move East. “That’s another reason to be optimistic for industrial,” said Kate Nolan Bryden, LEED AP BD+C, senior vice president, MRP Industrial LLC. “A lot of companies look to Amazon on customer service, returns handling and overall efficiencies,” and will follow suit.
What does the future of the industrial real estate sector hold overall? I.CON East featured a keynote on the impact of AI from futurist Greg Lindsay.
For real estate, the impact on the number of data centers needed equates to “a massive gold rush,” said Lindsay, with investment already huge and the need even bigger.
A recent JLL report said that AI demand has turned data centers into the “hottest asset class,” creating what JLL CEO Christian Ulbrich says is “a rare bright spot in a commercial-property market faced with rising office vacancies.”
In short, Ulbrich said, “When you believe in AI, the demand for data centers will only go up.”
Firms are using AI mostly in the ways we’ve all experienced, Lindsay said. Topping the list is contact-center automation (some say this growth could put an end to the India-based call center industry by the end of next year), followed by web content personalization and customer acquisition. AI-based enhancement of products such as a chatbot built in to the dashboards of Volkswagens and the creation of new AI-based products round out the list of top uses.
AI will certainly change our jobs, said respondents to PwC’s annual CEO survey, with one in four CEOs saying they anticipate reducing employee headcount by 5% or more in 2024. These positions are expected to be in back-office tasks including accounting and marketing, and in media/entertainment companies.
Lindsay closed with four recommendations on how to move forward with generative AI development and implementation:
- Develop an open innovation strategy, talk to everyone, and experiment.
- Don’t be content with only what’s on the market now. Consider open-source models and how they can be customized for your needs.
- Define use cases. Now that you have generative artificial intelligence, what can you do with it? Map out your problems and potential solutions.
- Develop trust requirements, not unlike a nutrition label that can keep you out of what researcher Shelby Doyle calls “rotting banana peels of data.”
Lindsay showed videos of drone deliveries of goods and robotic workers that whetted the attendees’ appetites for the future of generative artificial intelligence in the industry.