It Would Take a Lot to Gut Industrial Demand

DALLAS—Texas’ population is projected to grow to 32.7 million people by 2030. Moreover, industrial fundamentals should remain on a positive trend for the foreseeable future and the state is well positioned to weather any future economic headwinds.

Unless a major geopolitical situation arises, it’s hard to fathom demand becoming short-circuited for industrial space in Texas, says Robert Kramp, director of research and analysis in the Texas and Oklahoma division of CBRE. Kramp shared his insights on industrial distribution, capital and future demand in the second of a two-part exclusive. Do you see Texas picking up on the omnichannel/mixed-use development concept for industrial/retail as has been seen in some of the denser coastal cities?

Kramp: Many omnichannel users have been using their existing distribution facilities to serve both brick-and-mortar stores and online orders. A challenge e-commerce companies are facing is reverse logistics. Having a physical location for customers to bring returns certainly helps with this piece of the omnichannel chain. Some retailers are also choosing to allocate more of their footprints to storage and distribution, which makes sense for last-mile since these retail properties are close to where people live. Grocers and other big-box stores have offered click and collect, or services like Shipt, in which a person is physically picking items off a store shelf and delivering them. These are examples of other omnichannel strategies that fulfill last-mile-like objectives. How do you see the evolution of industrial’s adoption of automation? Do you think Texas is a good location for self-driving trucks? According to the American Trucking Association, the US has a 50,000 driver shortage, which will affect businesses and consumers.

Kramp: Absolutely, and that shortage you mention is expected to grow to 175,000 drivers by 2024. According to the Bureau of Labor Statistics, there are approximately 1.7 million truckers in the United States and they earn an average of $42,480 per year. Wages are approximately 40% of the marginal cost per mile. Because of truck drivers’ difficult lifestyles and time spent away from home, many companies have trouble finding and retaining qualified long-haul drivers. The American Trucking Association claims there could be a shortage of drivers. Currently truck drivers are limited to 60 hours per week and must take regular breaks. Autonomous trucks could run 24/7, creating greater efficiencies for shipping companies.

Because of autonomous trucking, there will likely be increasing consolidation in upcoming cycles, something that we have seen already with the increasing size of regional and super-regional distribution centers that have come into fruition this cycle. Major logistic hubs like Dallas/Fort Worth will benefit from this type of development, which will largely occur at the periphery of population centers. There will also be increased demand for trailer parking and staging areas, which will synergize with the efficiencies created by autonomous trucks. Do you see self driving and ride sharing affecting developmental concepts? Parking lots?

Kramp: Parking lots are an important requirement right now for e-commerce facilities where you have lots of people needed to pick and pack smaller items. There will be increased demand for trailer parking and staging areas which will synergize with the efficiencies created by autonomous trucks in the future. Most of the big development changes we will see are related to the effect of ride sharing and certainly autonomous vehicles are likely to occur in the next cycle and are probably on a five to 10-year horizon. Do you think the flood of capital and focus will help or hurt the industrial sector?

Kramp: Increased competition is a good thing. It helps markets function more efficiently. Cap rates throughout the state and overall nationwide, have remained stable. I don’t feel that pricing is out of line with current underwriting and investors can still get a healthy return on industrial assets in Texas. What threats do you see that could dampen Texas and individual markets?

Kramp: Outside a major macro-geopolitical event, it’s hard to imagine a situation that would gut demand for industrial space in Texas. This expansion period will not last forever; business cycles by definition have a beginning and an end. It’s important to remember that even when the economy isn’t firing on full cylinders, all businesses simply don’t stop doing business. There will be winners and losers, no doubt, as this is a fact of capitalism. However, the fundamentals should remain very good for the foreseeable future and Texas is well positioned to weather economic headwinds that might come about. Finally, what is your outlook for Texas as a whole and for specific markets?

Kramp: Our outlook for the Texas industrial market remains strong. Texas’ population is projected to grow by 16.5% by 2030 to 32.7 million people. Texas is a place where people simply want to be. If we keep adding jobs and people, the demand will follow.

Dallas/Fort Worth will remain a destination for industrial occupiers and investors. For occupiers, the market offers a favorable business and taxation environment, and for investors, the region has exceptional fundamentals that made it the second most desirable market for investment, according to the CBRE 2018 investor intentions survey. DFW’s widely recognized job growth and economic diversity is driving investor interest in the market as well, in addition to world-class infrastructure.

There are three tier-1 railroads that converge in DFW: UP, BNSF and Kansas City Southern. The BNSF Intermodal at Alliance in the North Fort Worth submarket serves six intermodal trains per day, with direct service from the Port of Long Beach.

Dallas/Fort Worth is served by two major cargo moving airports–DFW and Alliance Fort Worth. DFW is the fourth-busiest airport in the world in total operations and a major economic driver for North Texas, with an annual economic impact of $37 billion on the regional economy. Cargo operators at DFW offer direct connections to 21 major international cargo markets. Alliance Fort Worth was opened in 1997 as the world’s first 100% industrial airport, and is the location of the FedEx southwest hub. Alliance airport is expanding two runways to over 11,500 feet in order to accommodate the large jets that can reach Asia and other intercontinental routes.

To read the full article from GlobeSt click here

June 15, 2018

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