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Caught Between A Robot And A Cool Place

The impending tide of automation for many warehouse tasks is looming on the horizon and the competitive labor market conditions are causing industrial developers to make tough calls on how to design their buildings to attract workers.

Raymond Construction President Charles Raymond, USAA Real Estate Managing Director, U.S., Lange Allen, CBRE Senior Vice President Jonathan Bryan, Duke Realty Senior Vice President Jeff Thornton

As the industrial asset class soars with demand from population growth, a good economy and the advent of e-commerce, labor for industrial operations is in high demand. Tenants are asking developers to make industrial spaces more worker-friendly so they can compete for a dwindling number of workers in the labor pool.

"The competition for labor is fierce. I can remember going back 15, 20 years ago we'd go out and show a warehouse to a user; they hardly ever asked about labor supply in the market, they just were not worried about it," Duke Realty Senior Vice President Jeff Thornton said. "Frankly, every single RFP we receive these days asks us to address labor one way or the other."

That includes making warehouses more pleasant for workers.

"An interesting dynamic that we're going to I think see more of in the future is the HVAC [climate-controlled] warehouse, and we're not seeing a ton of it right now, but that's really coming into play because of the competitiveness of labor," CBRE Senior Vice President Jonathan Bryan said.

Bryan said lenders also recognize worker comfort as a critical need and they are showing it by forking over the extra cash necessary to outfit warehouses with full HVAC capabilities.

FCL Builders Vice President, Business Development, Cory Singer, Majestic Realty Co. Senior Vice President Al Sorrels, PLR Development President Rob Huthnance, Westmount Realty Capital founding partner, Director and CEO Cliff Booth and Hudson Peters Commercial principal Michelle Hudson at Bisnow's Dallas-Fort Worth Industrial and Logistics Summit

The problem is that at the same time tenants need these upgrades and nicer spaces for humans, automation is quickly approaching to shake that up and do away with the need for things like HVAC.

"You know we're really concerned about air conditioning warehouses right now for employees, but the trend is clearly toward automation and while we might need 500 employees [in a warehouse] now, in five years, if you talk to any of the automation guys, you know that is going to change by a factor of 10," Hudson Peters Commercial principal Michelle Hudson said.

The takeover of automation will also change the way physical spaces are built, especially as it relates to e-commerce.

E-commerce was responsible for 27% of national industrial absorption in 2017, and it is projected to continue to increase as e-commerce takes up more of the retail market share (12% by 2020), Bryan said, quoting Cushman & Wakefield research.

Right now, 40-foot clear height properties are the buzzy industrial trend. According to Thornton these higher ceilings have nothing to do with pallet height and extra storage space. Instead, developers are pushing for 40-foot clear heights because they leave room for mezzanines that e-commerce fulfillment centers need.

To that end, developers are spending extra money on construction to beef up their slabs and put in piers that can enable users to put mezzanines in later. USAA Real Estate Managing Director of U.S. Industrial/Logistics Development Lange Allen said even if warehouses these days do not have full mezzanines or full mezzanine capability, a portion of many of the new projects is being dedicated to e-commerce space with a mezzanine. As technology changes, so will the physical design of these spaces, he said.

"I think what we're going to see in the coming years is almost a war on MHE [materials handling equipment]. The material handling guys that are out there, they're going to figure out what's most efficient, and we as an industry are going to have to learn to adapt," Allen said. "Right now it seems to be mezzanines; we may end up increasing our floors; we may end up increasing our clear height ... as e-commerce evolves and the MHE evolves, I think we're going to see that's where the biggest driver of change in our buildings is going to be."