Colliers Capital Markets recently sat down with Brewster Smith, Senior Vice President, Supply Chain Solutions, to discuss how industrial occupiers and landlords can navigate today’s increasingly complex market.
Colliers Capital Markets (CCM): What are some of the biggest challenges facing occupiers today?
Brewster Smith (BS): Challenges vary from one occupier category to another. Conventional retailers have to repurpose and rationalize much of their storefront real estate and migrate to a more robust, direct-to-consumer, order-fulfillment model. E-commerce retailers must contend with the customer service expectations of a post-Amazon, post-pandemic economy, in which any order lead time longer than two days is considered unacceptable. Industrial distributors and manufacturers are confronted with the fact that few employees want to be a warehouse associate or CNC machine operator any more — so the urgency to automate and/or identify process efficiencies has never been greater.
CCM: Industrial rent has never been higher. What can occupiers do to better optimize their facilities?
BS: Clients frequently tell us they’re “out of space.” However, when we dig deeper, we find that space isn’t always the problem. In some cases, clients may have too much inventory, because they don’t have a routine SKU rationalization and inventory write-down process. This causes slow-moving or obsolete inventory to take up valuable square footage and vertical cube capacity within a building. Many organizations don’t like to scrap slow-moving or obsolete inventory, because it may dilute their net income. However, the implementation and increased occupancy costs of moving to a new facility can impact earnings just as much, if not more so. Consequently, comparative analysis needs to happen before any decision to move is made. Occupiers have other capacity optimization options as well; they can modify the design of a building, investigate vendor-managed inventory (VMI) options, and explore the cross-docking of inbound merchandise already allocated to customer orders.
“There has been a percentage shift of inbound container flow from the West Coast to the Gulf and East Coast ports.”
CCM: Port volumes have shifted from West to East and Gulf Coast ports. In which markets are you seeing the most activity?
BS: There has been a percentage shift of inbound container flow from the West Coast to the Gulf and East Coast ports. However, from a TEU perspective, port usage rankings haven’t changed. When customers ask us, “What markets do you like,” we prefer to be impartial because there are varying opportunities throughout the country, depending on each occupiers’ needs. However, the West Coast has become increasingly costly. Consequently, clients are taking a closer look at Southeastern and Gulf Coast markets — with their lower labor costs, affordable cost of living requirements, generally good weather, and multiple port options for container importing/exporting.
CCM: Artificial Intelligence (AI) and automation have been all the rage of late. Are you seeing AI and/or automation making an impact in the industrial world?
BS: It’s still early, but the technology offers tremendous opportunity. I’m confident that, some day in the future, there will be multiple use cases for AI in the areas of supply chain planning, visibility, and operations management.
The labor-scarcity problem has accelerated an interest in mechanization, robotics, and automation to enhance the productivity of warehouse and distribution center operations. Every client is different, so one company may benefit from a simple mechanized solution like a motorized conveyor, while a larger organization may need a fleet of 75 collaborative robots. Selecting a mechanization or automation solution is like choosing a contractor for your home; your decision is always predicated on the problem you’re trying to solve, or the improvement you want to make.