Labor Rising On List Of Site Selection Concerns For Warehouse Users
Access to skilled labor pools has become a primary factor among retail companies in search of new distribution centers. This need for qualified talent has ramped up costs for these companies as they compete for the same employees in markets across the country.
“There's more of an emphasis now on the labor,” JLL Executive Vice President Wit Truitt said. “When companies are coming in, they're putting more and more of a premium on labor, maybe more than they have in the past.”
There is a confluence of events taking shape today that is driving this perfect storm of obstacles when it comes to warehouse labor. As of the start of 2017, there was more than 12.5B SF of industrial space across the U.S., according to a JLL report. That is set to expand further with an excess of 200M SF under construction as of 2017.
E-commerce and retail tenants remain the driving force behind industrial space demand. Of the nearly 200M SF of warehouses leased by companies in 2016, e-commerce and retailers commanded 18% of that demand, according to another JLL report.
That kind of growth comes with a need for employees. The number of employees in the warehousing and storage sector now tallies nearly 950,000 people in the U.S., according to data compiled by the Bureau of Labor Statistics.
“Now labor is a top concern for most distribution and e-commerce companies,” CBRE Labor Analytics Director of Client Strategy Laura Sidney said. “It's almost like the perfect storm.”
Warehousing Ramps Up Hiring
The growth of jobs in this sector has been explosive. In 2007, some 675,000 people worked in the warehousing and storage industry, according to the Bureau of Labor Statistics. Between then and 2011, the number of warehousing and storage workers actually dropped to 665,000. But from 2011 onward, the growth has been seemingly explosive, averaging some 40,000 new jobs a year.
Finding employees is increasingly an issue for logistics firms and both online and physical retailers, especially when the U.S. unemployment rate dropped below 5% last year and continues to tighten, falling to 4.3% in July, according to the latest jobs report.
Site selection among warehouse users has become a balancing act of finding prime locations to serve stores and customer bases, while at the same time finding enough employees to staff the operation. That is especially true for big-box distribution center operations, Truitt said.
“It's not that [labor is] not available. There's still a good labor force. But it becomes more and more of an emphasis as these distribution centers get larger and need to hire more labor,” he said.
Seefried Industrial Properties Executive Chairman Ferdinand Seefried has seen this firsthand. His firm has developed 50M SF of logistics space across the U.S., including major warehouse hubs for Amazon. Seefried said site selection is being influenced by not only tangible things like land costs and access to major roadways, but available pools of labor is now a major factor as well.
“The cost is what it is. More important is where is the people they need. Is there enough [of a] labor pool?” he said.
Costs Going Up, But Doesn’t Trump Need For Employees
For warehouse tenants, the major concern is whether there is enough of an employee pool for companies to dip into. The cost to hire those employees is a secondary concern, Seefried said.
This is especially true for warehousing's cousin, manufacturing. According to a 2017 CoreNet Global report titled Manufacturing Location Strategy: Workforce Drives Decision When Selecting U.S. Sites, companies are striving to identify the right mix of skills and costs when scouting for sites.
“It is a balancing act, which is why it is very important for companies to define what their requirements are going to be now and in the future,'” Wadley Donovan Gutshaw Consulting principal Dennis Donovan said in the CoreNet report. Wadley Donovan Gutshaw Consulting is a corporate location firm in New Jersey.
According to the CoreNet report, manufacturers tend to gravitate toward larger population centers, where there is a deeper pool of employees with more sophisticated skill levels. But those areas also are where labor tends to be costlier, CoreNet officials said in the report.
Costs for warehouse labor also are going up, in part due to the skills needed for a modern distribution center with lots of automation as well as just the sheer competition for labor.
But there are other factors.
“There [are] also minimum wage conversations happening coast to coast that [are] influencing the cost of labor,” Sidney said.
More than a dozen states increased their minimum wage between last year and this year, an average of 93 cents an hour, Sidney said. Since many warehousing jobs are paying close to the new rates for minimum wage, that does affect the bottom line costs e-retailers and other warehouse users are feeling, she said.
Incentivized With Higher Wages, Benefits Packages
But minimum wage is only one factor in the growing cost of warehouse employment. As more distribution centers pop up, particularly in major markets, companies are having to do more to not only lure employees, but to keep them there as well.
“Wages aren’t the only form of compensation that matters. Benefit packages are important too, although which benefits are most important varies around the world. Two types of benefits that essentially increase salaries — ‘variable cash bonus’ and ‘expense reimbursement’ — make the top five all over the world regions,” PricewaterhouseCoopers officials said in their 2012 report.
“Other important benefits include healthcare and pension plans — both areas where expectations have been changing in recent years and where the cost implications for companies are major, especially with [aging] populations,” PwC officials said in the report.
It is a simple matter of competition for labor, Sidney said — a competition that is not abating any time soon.
“Am I going to be a preferred employer in this market, and if the guy across the street pays a quarter more, am I going to lose my employees?” she said.