Supply Chain Now Episode 365
“Companies who have not adjusted to the eCommerce world that we’re living in are in a world of hurt. If they don’t have the supply chain infrastructure to support the growing demand for eCommerce in the Amazon effect, they’re going to have a lot of trouble surviving in the 2020s.”
– Ward Richmond, Executive Vice President at Colliers International
For years now, companies have been looking to do more with less when it comes to real estate, making the most of expensive investments. In the wake of the COVID-19 pandemic, the trend has reversed, with companies looking to have enough space to maintain the safety of their teams without skyrocketing overhead.
Ward Richmond is an Executive Vice President and shareholder at Colliers International, as well as a blogger at supplychainrealestate.com. The U.S. industrial real estate review for Q1 2020 has just been released, and while the real estate market has changed significantly in the last 3 months, it still provides valuable benchmarks and insight that companies can use.
In this conversation, Ward returns to the show to provide Supply Chain Now Co-hosts Greg White and Scott Luton with an update on:
- Why the economic indicators from Q1 2020 bear no connection to what we’ll see during the remainder of the year, and why none of it tells us what to expect in 2021
- How industrial real estate costs and vacancy rates vary from market to market and city to city
- The advice he would give to anyone running a company that is less worried about surviving and is in a position to take the pandemic disruption as an opportunity to grow
Intro – Amanda Luton (00:05):
It’s time for supply chain. Now broadcasting live from the supply chain capital of the country, Atlanta, Georgia, heard around the world. Supply chain now spotlights the best in all things. Supply chain, the people, the technologies, the best practices, and the critical issues of the day. And now here are your hosts.
Scott Luton (00:29):
Hey, good afternoon, Scott Luton and Greg white with you here on supply chain. Now welcome to today’s show, Greg. We’ve got a special guest in store today, right? I’m already glad to see him. He’s already here with us right here at the virtual studio.
Ward Richmond (00:44):
Greg White (00:44):
And um, yeah, there he is right there. And um, I’m really looking forward to it because he’s got a really interesting report about what’s going on in real estate. By the way, if you see me looking this way, it’s cause I’m looking over here at the report to check it out. Incredibly thorough ton of information here. We’re going to take the high spots, but uh, there’s a lot to it, so we’ll point everyone to it.
Scott Luton (01:07):
So let’s connect the dots for the folks that may be listening. So first off, we’ve got ward 10 X Richmond with us here today. Uh, executive vice president and shareholder at Colliers international, w w one of the leading real estate firms in the world. Uh, ward. Good afternoon.
Ward Richmond (01:23):
Hello. How are you guys doing your faces? I wish I was
Scott Luton (01:29):
well, I spend too long. Great to have you back. And then it connect the dots on the, on the other thing that Greg mentioned and kind of for shattered a bit, the report he’s talking about, we’re going to be, we’re going to be diving in with ward on the U S industrial Q1 2020 review, which is all about some of the key things you need to know in industrial real estate. Is that, is that right ward?
Ward Richmond (01:49):
Yes sir. I’m looking forward to going over to the high points of that report and of course you can find the entire report upon my email@example.com. And uh, yeah, this is our U S industrial report that we’re going to start off talking about. Um, when we get into the industrial real estate world today. And, uh, it’s a quarterly report that we put out with Colliers international. It’s organized by our head of us industrial research, Amanda or teas. And, uh, it’s just an incredible comprehensive report that’s a bunch of data gathered from all of the different markets throughout the United States related to industrial real estate activity.
Scott Luton (02:33):
It, you know, what, you make me tired just hearing about all of that work that went into the exhaustive research that went into building this report. Um, so before we dive into that, Greg, we want to learn a little bit more about ward and get some good news. But for starters, ward in, you know, in the reader’s digest fashion, tell us about yourself.
Ward Richmond (02:51):
All right, well, I am based out of Dallas, Texas. Born and raised here.
Ward Richmond (02:57):
After high school I attended Brown university and uh, then moved back to Dallas. I started my career in industrial real estate in 2006. So it’s, uh, coming on almost 15 years now. Like I’m just past 14 years of doing this and our team specializes in representing occupiers of industrial real estate globally. So those are, those are the tenants that use the big warehouses and the big manufacturing facilities. So, you know, we work with manufacturers and shippers and, uh, third party logistics companies and trucking companies and pretty much, uh, everything you can imagine within the realm of the supply chain.
Scott Luton (03:39):
Love it. And if you’ve got a problem related to and, and, uh, I love how you specialize, you know, supply chain, you’ve talked in previous shows with us, they really important to, uh, to specialize in the real estate space. So if I’ve got a problem, real estate related or supply chain related ward can be a wonderful resource. And if it’s not him, he’s got a vast network that he leveraged for his clients all the time. And, and the, as you can tell, we’re big fans. This is a wards, I don’t know, probably a six or seven appearance here on supply chain. Now, Hey, before we talk good news ward, and you may, you may break my legs for doing this later, but as a personal aside, you’ve got, I know you’re a huge music artist, used to have a rock and roll tours globally. You’re dropping some new music here next month, right?
Ward Richmond (04:25):
I am. I am. Uh, well I’ve, uh, I’ve been playing music since I was in high school and I’ve actually, prior to the beginning of my career in industrial real estate, I was a professional touring musician, um, in my twenties and, uh, retired from the road back in about 2006 when I started doing this. But, um, along the way, since that time, I’ve still recorded a lot of music, written a lot of songs and I still play shows actually. Um, we just played a show the Saturday before Kobe porn scene began and the world flipped upside down and it was, it was the only show we had booked for the year. So we normally play like one or two shows a year. But yeah, last year I, um, wrote a bunch of new songs and um, went into the studio and it’s one of my favorite things to do and um, assemble the band and uh, worked with an incredible producer and we made an album. So that album’s coming out and on my birthday on June 26th. So it is, so the album is under my name, ward Richmond, and the name of the album is called highly meditated.
Scott Luton (05:36):
Love it. Alright, so let’s talk about some other good news, right? Greg, tell, tell us, I mean, aside from that, which is really, really great news, tell us what’s a, what’s top of your radar right now in terms of good news?
Ward Richmond (05:50):
Yeah, that is exciting news. The music. I have another personal note. I’ll just say like, um, I’ve looked at this is an absolute blessing. Um, I have spent more time with my children, um, and it’s, uh, and since quarantine then I would have to say that I did, I’m talking real present quality time with them. Not necessarily being in the same city or the house is them at the same time, but, um, during this quarantine then I would say in all of last year and this year combined, um, as you guys know, I’ve trout, I used to travel a lot. Uh, I was away for work 70 nights last year, so I was constantly on the road. And then of course when I was home, um, part of my business was lots of entertaining and dinners and conferences and this and that. And I mean, I, you know, we’re going full speed ahead.
Ward Richmond (06:41):
And, uh, now that stage in my career where I think it was the norm to do it, and I knew, I sensed there was something not great going on in terms of my quality time being filled with my young children. Um, and then it came to, I just had a great awakening really since this all started and I’ve gotten to spend so much time with them and watched our relationships just like exponentially improved. So that’s been an incredible blessing on a personal front, on a business front, I can tell you when COBIT happened, probably like most people, I was freaking out quite a bit. And, um, who knows? And I, my, my income is purely transaction based, so I do not have, I mean, are we get compensated when we close deals? And, um, so when something like COBIT occurs, there’s undoubtedly going to be a slowdown and deal closing.
Ward Richmond (07:35):
And, um, that that’s kind of scary when you’re a commission only a 10 99 employee like I am and like all my team members are as well. And um, so it was, it was a little scary, but I think, um, the dust has settled and, um, our business is um, keeping on and thankfully we’re a lot of incredible companies that are weathering the storm and, um, and in some cases even thriving despite the circumstances because as I’m sure you’re all aware, um, there is going to be an uptick in the growth rate of eCommerce, which, uh, is going to be, um, something that has a positive impact on my sector of specializing in industrial real estate,
Greg White (08:23):
increase the, the number and types of distribution facilities as companies try to get closer and closer to the consumer. And we’ve lost a couple of pretty good size retailers that may or may go completely away or may, um, may go e-com. Only pier one just announced that they’re going to liquidate close all of their stores. Maybe, maybe ward, what we ought to do is tell them to just stick the econ and write and get some industrial facilities and, and distribute,
Ward Richmond (08:56):
right. I’m not going to speak about any companies specifically, but I can tell you that companies who have not adjusted to the eCommerce world that we’re living in are big or they’re in a world of hurt. If they don’t have the supply chain infrastructure to support the growing demand for eCommerce in the Amazon effect, they’re going to have a lot of trouble surviving in the 2020s. And, uh, especially postcode mid 20, 20. And uh, if you want to make that happen very quickly, I would say call a three PL. There are lots of three PLS out there that specialize in eCommerce and that’s what, um, most of the, uh, you know, a lot of shippers are doing, uh, simplifies things. The three PL specialize in e-commerce distribution for retailers and that’s all they do for a living is handle the distribution of that eCommerce product.
Ward Richmond (09:51):
So I think, um, now of course there’s lots of eCommerce companies who pride themselves on being an eCommerce, but I’m really specifically talking about retailers who might still be operating on a warehouses that they designed in the nineties. And when I was in the nineties, there were a lot of retailers or household name brands that, um, I had the, where the latest brands of their clothing to when I went to high school so that I might be able to get a date and they were so cool and so stylish and trendy. But the problem is on some of those companies, if you go to their website, then it’s kind of a pain and it’s going to be expensive and slow. And then I say, ah, I made, I’ll try this new brand that’s on Instagram and I can click one button and I pay with Apple and it’s at my house one day and I don’t pay for the delivery.
Greg White (10:44):
Yeah. A lot of the brands, a lot of the retailers we’re seeing go belly up. We’re staggering anyway. Right. We can mention the brands here. That’s what we do. But, um, but you know, JC penny, Neiman Marcus, Macy, several of them, not that they are all belly up in case any of you are shareholders, but they are all staggered and were, were staggered by e-comm to begin with and Cove, it has just been the straw that broke the camel’s back for many of these companies. But that’s a great suggestion. There are so many companies out there. I think the last time you were on board, we talked with Tim Hinkley from radial who does, um, three PL services for e-commerce. And there are a ton of Shopify of course, is really getting into that to try and compete directly with Amazon. And there are a ton of other companies doing that as well. Yep.
Scott Luton (11:33):
ABA. All right. So that’s one of Greg’s favorite acronyms. I love it. Anyone but Amazon
Greg White (11:42):
Scott Luton (11:43):
Right. It’s good to have healthy competition, right. And healthy competition. Alright. So ward moving right along as we dive into this report, you’ve already kind of laid the basis around just how exhausted the research, the thousands of data points and everything that goes into making this a really credible, um, uh, piece of research for business leaders to look at and review. Um, and this comes out every month from the call. Your, you’re right. Every quarter, every quarter. That’s right. Um, it would be a lot of work
Ward Richmond (12:16):
and, and let me throw something else out there. Um, this report track history of what happened in the first quarter of 2020 that was barely affected by Kobe. Um, so it’s almost, I think it’s worth talking about quickly to see what was going on in the U S one. I think what happens in Q two, three and four, um, is it is going to, um, be quite different, quite a different story than what we saw in Q1. And then on top of that, I also don’t think it’s going to be meaningful in terms of what’s going to happen in 2021. So I don’t think it’s going to be like the beginning of some new longterm trend. It’s just going to be like a short snapshot of what happens when the world shuts down for the first time in my life and how that impacts decisions getting made, which is, it slows them down because everybody’s just been scrambling to figure out how to operate in this new environment. And, um, so let’s talk about these numbers are, they’re pretty incredible stats and, um, I do think we’ll see a slow down in Q two, three and four and then, uh, probably absurd happening in 2021. So, um, do you want to hop into some of those slides and I can talk you through them?
Scott Luton (13:37):
Absolutely. And Greg, we’re going to be moving fast and furious. So dive right in here. Yep. All right. So ward your what we’re calling kind of your key insight number one, take it away. Yeah,
Ward Richmond (13:49):
yeah. And feel free to stop me and ask questions if I’m speaking in real estate terms that don’t make sense to you, but that, um, this is our key insight number one. And that top level number 63.5 million square feet is the year to date overall net absorption. That is, uh, that’s how many deals got done. So 63 million square feet of deals got signed in the U S uh, for industrial real estate and Q1 warehouse distribution. Rent rates are $6 and 18 cents per square foot on average. So those costs are per square foot per year is how that cost is being quoted and it’s also being quoted triple net. So that’s not including your taxes or insurance or operating expenses. That’s just your base rental rate. Does that make sense?
Scott Luton (14:39):
Yeah, I think so. Uh, so real quick in some kind of context, some kind of historical context. Six, six bucks, $6 and 18 cents per square foot. Is that a competitive
Greg White (14:52):
rate or what’s your take on that?
Ward Richmond (14:54):
I knew you were going to ask me that. So that’s pretty high. Um, in the history of industrial real estate, I would guess that it kinda, w used to be for pre Amazon prime and then it jumped to five, and now it’s above six level. And, um, so that would be, I’m kind of guessing, but I bet I’m pretty close. And I’m also give you a feel how we get there. Like in, in Dallas, if you’re looking at the rates for, um, the, the large distribution space, it’s, um, closer to $4 a foot. And then in other markets like, uh, Northern California, it’s getting up there closer to $10 a foot. Uh, and so then you can just imagine how that works. Like markets like New Jersey, Seattle, LA, um, all have, um, you know, just a lot more barrier to entry than a Dallas. So we have more land. It’s just going to be lower priced. Um, Chicago’s in Atlanta are pretty close to Dallas pricing. I think in general. Uh, Toronto is extremely high if you want to look into Canada and, um, that’s because it’s just tough to develop buildings in those, uh, in certain markets versus others.
Greg White (16:09):
Gotcha. Gotcha. Okay. Yep.
Ward Richmond (16:12):
Um, the overall vacancy rate is 5.2%. That’s a very healthy vacancy rate. And, uh, on the low side. And, uh, then product under construction is a whopping 330 million square feet of space.
Greg White (16:25):
So you say whopping. So clearly that’s a huge number. So are records or a substantial uptick from the previous year or previous quarter? So I know, yes, probably this is ancient history now, but ward, what was the trend that we were seeing, um, until as you said, the world changed. What do you think was driving that? Was it
Ward Richmond (16:53):
the eCom? Uh, and yeah, the growth of e-commerce that’s been driving it. And I heard, I heard someone, uh, speak the other day that is, uh, with, uh, one of the largest institutional landlords in the country. And I heard, um, this stat that basically e-comm growth has been growing at a clip of 15% per year. Um, and that basically requires 500 million square feet of space or 500 million square feet of demand for industrial real estate at that growth rate. Um, so if, because of Kobe, people like my father started ordering their prescriptions and groceries via econ, which he didn’t used to do and lots of other people in the world that did not use to use e-comm have now almost been forced into it, but now also realize how awesome it is and uh, there’s going to be an increase in the growth rate. So if the growth rate were to increase from 15% to 20, I heard the stat that the demand could increase from 500 million to 900 million square feet. Wow, that’s pretty, that’s quite incredible. Uh, increase in demand is that we could see if that growth rate does in fact increase, which, um, most, most experts I’ve talked to on the matter think that that will happen despite not having a crystal ball.
Speaker 5 (18:13):
We’ve talked about the amount that’s bill and the amount that’s in process. Are we going there here soon or I don’t want to jump ahead of us a little bit, but, um, Ward’s the boss. Yeah. Or do you want to cover of any of your other metrics here? But we have talked about what’s built versus what we expect demand to be and the impact that that can have on pricing.
Ward Richmond (18:37):
Yeah, of course, of course they expected a man to be what’s being built. So I think, but here’s what’s going to happen. This stat for everything under construction, some of this is going to get the pause button is going to get hit because of coal bed. If it hadn’t officially started yet or if it was super early stage, they’re pausing it. Okay. So that number is probably higher than what’s actual is my guests. Got it. And then on top of that, there’s a little bit of a hesitation, pause and demand as well. Um, I think for especially smaller deals, and we’re going to get into this, but I think there’s going to be a little bit of a positive man. Suddenly there’s going to be a surge in demand. I in my what is what I expect. And then also we might have a shortage of supply because people have hit the pause button right now, do the COBIT and then that can create a whole another weird situation where you have like this momentary softening in the market and then boom, it’s like everything changes and we don’t have enough supply to accommodate the demand.
Ward Richmond (19:41):
And then, um, that’s, that could be an issue. Or, uh, the, the dark side of the moon is that the economy pulls apart and nobody can afford to buy e-commerce. And then who knows what will happen. And I know that everyone hopes that does not occur. And obviously the solution to combat that is to get businesses back up and running as quickly and as safely as possible.
Speaker 5 (20:07):
Yup. Yup. Okay. We’re going to keep driving into key insight number two. Are you ready? Ward and Greg. Alright, ready? Alright, so now we’re talking net absorption, which for folks like myself, you’re going to have to explain that, uh, and product under construction. So, so talk about what absorption means first.
Ward Richmond (20:28):
Yeah. Absorption is basically, um, if you imagine you’ve got, um, you know, uh, a big, a big market full of empty warehouses, how much of that empty space is going to get filled? And that’s what the absorption numbers, um, track. So you can see the number one market Q1 was the inland empire. That is the market in case you’re not familiar with that. It’s outside of Los Angeles. It is uh, like Ontario, California where the airport is there in Ontario, California. That is just like the prime hotspot for building these monstrous warehouses that, um, basically sit outside of Los Angeles and service the greater LA area. And um, they, uh, so that’s just a huge market. They’ve had 10 million square feet of absorption. My hometown of Dallas, Fort worth is number two with 8 million. And then you can see Chicago, Houston, Kansas city, Baltimore, and uh, Northern New Jersey are all trailing that. So, um, the next slide there, did you have any other questions or does that all make sense?
Scott Luton (21:41):
Yeah, I think it makes sense to me. Uh, you’re still, when you say the next slide, you’re talking about the product under construction next.
Ward Richmond (21:49):
Yeah. Um, and that is, uh, hometown Dallas, Texas is leading the charge with that, uh, with 35 million square feet under construction followed by Atlanta, Chicago, Houston, LA.
Scott Luton (22:03):
Hey, real quick. Or, uh, you know, Greg and I both are really familiar with, with, you know, why Atlanta, there is number two and some of the factors behind that. Um, it’s a great city to do, to do anything supply chain and technology or logistics or you name it or what some of the things off the top of your head that make DFW in that area. Such a great market.
Ward Richmond (22:24):
Okay. Um, well we have incredible, um, highway infrastructure. We have, um, lots of different interstates running through the DFW metroplex. We also have two inner modals, one service by the BNSF railroad, one service by the union Pacific railroad. We have an industrial only airport at Alliance airport. We have DFW airport, which is one of the most active airports in the world for freight and for, uh, passenger travel. And, uh, then on top of that, we have a very, very fast growing population and I don’t have population stats on DFW and I’m just not good at remembering things like that. But I mean, I know there, here’s what I know is that there used to not be traffic and now I think the traffic here is just almost as bad as the traffic in Los Angeles. And it gets worse every day because people keep moving here.
Ward Richmond (23:15):
And that’s fantastic. So people move here because there’s a low cost of living. There’s lots of jobs, there’s lots of companies that are moving here because we have incredible infrastructure for office space. We have incredible labor pool. There’s no state income tax. We’re central time zone. I’ve been a guy that flew 70 nights last year, um, or was away 70 nights last year. I can fly anywhere in North America in basically three hours or less. Uh, Toronto, Mexico city where LA legal work, wherever I want to go. Atlanta is like two hours. Um, so it’s just very convenient to live here. I can do business on the East and West coast and uh, never have to really adjust my time too much. Um, so that’s nice.
Scott Luton (23:59):
I’m sold, I’m buying a house.
Ward Richmond (24:02):
Can you tell, can you tell like I do this on a daily basis? Yeah, well, it just makes sense. And there’s a lot of big distributors that, um, come here and it’s located right in the middle of the country for the most part. And um, the population growth and yeah, I think that’s it. And we have great labor and it’s affordable and it’s low cost of living and there’s lots of land here so you can keep building and the land is so inexpensive if you go get land. Um, I mean like in LA, I think it’s like 20 to 40 bucks a foot. Um, and Dallas is like, you know, you can go get land for three to five bucks a foot.
Scott Luton (24:43):
Well, you know what, um, we saw some of the available land, Greg, as we ventured out in the supply chain now van to Austin, uh, for the EFT conference way back before the world changed last November. And beyond the great food man there was, there was a expand business expansion everywhere. It’s seen, of course that was, that was quite some time ago.
Ward Richmond (25:04):
Yeah. I mean, I tell you, Austin doesn’t actually have the, even anywhere close to the amount of, um, land supply that we have because the topography there and, uh, they have wakes and rivers and Hills and, uh, Dallas is just flatter. So, um, and we have a lot better highway infrastructure to support the growing population. I think Austin, if you go there, if I think the traffic’s bad in Dallas, traffic in Austin is brutal. And I love, I love Austin so much and I always say I want to move there whenever I go there, especially the rock and roller. I mean, you know, and I, I’m a singer songwriter and that’s such a huge part of the culture in Austin. So I love it, but the traffic’s brutal and they, they just haven’t really designed the roads to support it the way that we have and DFW.
Scott Luton (25:53):
So let me wait, let me get Greg. So, so we’re getting a ton of information here from ward and I love it because it’s not all focused just on real estate. It’s a lot of business observations that whether you’re looking for a site, you’re looking for a job, it might be helpful. Greg, what’s, what’s in any key observation from, from this information data thus far on your end? Yeah, I think what you’re seeing here is you’re seeing a lot of those marketplaces that are the lesser, even of the, even of the relatively costly, they are the lesser costly at a critical crossroads like ward is talking about in Atlanta. We have three interstates that go right through the middle of the city. Um, and that has its blessings and curses. Um, Chicago is a Houston, Kansas city that you mentioned all
Speaker 5 (26:44):
center, uh, of, of the country. Right? And, and with port access and, or, um, transportation access or, you know, in the case of some of these cities, Kansas city has always been a transportation hub, right? Literally the center of the United States. So there are a lot of those things. Even inland empire ward, if you think about that, even though relatively expensive because it’s California, it’s much, much less expensive than it is in the larger, uh, LA or Norco. Right, exactly. You’re exactly right. Is that migration of industry. And now as we’ve started to see with Cova, we’ll start to see migration of workers around the country because as companies, uh, cease to require onsite work, you can live anywhere, right? I just published an article on or posted an article, started publishing, posted an article on LinkedIn about that very thing. Why would people stay in Silicon Valley, right?
Speaker 5 (27:52):
When they can now work from anywhere. Facebook, Twitter, Google. Several companies have allowed their people who already work some from home to work solely from home, right. And there and companies and people are already flocking to Texas and Arizona and Georgia and other States from the expensive marketplaces around the country to see that impact. Um, I think office to some extent, maybe, maybe, um, hoteling or shared office space and, and home real estate as well. Yep. All right. Ward, uh, react to that or, or piggyback on the commentary before we move on to key insight. Number three.
Ward Richmond (28:34):
Do you think I could pull off living in Maui with the time difference?
Speaker 5 (28:40):
It’s funny, it’s funny how many people, you know, I ask people, okay, if you could work from anywhere you wanted to, where would you choose? And it was amazing how almost right off the bat, people designated themselves as beach tribe or mountains or mountain tribe. I don’t know if you’ve ever heard those terms. Those are kind of, um, it was, it was interesting how quickly somebody went, I’m going to the Lake in the mountains, I’m going to the beach, whatever. Right? Totally. It is interesting and people are seriously thinking about it. Mm Hmm. Yep.
Ward Richmond (29:16):
And you can, and uh, yeah, I’ll tell you, I agree with all those thoughts and um, and one thing I did forget to mention about Texas is the, the government, the state of Texas, you know, and the local municipalities and those governments and they’re super business friendly. We’re opening up right now pretty aggressively. Thankfully I got to go to a yoga class this morning that opened back up. They’re handling it very safely. They’re doing social scene, but they’re opening back up so they can like actually operate a business
Speaker 5 (29:46):
so you can stay heavily meditated. Right.
Ward Richmond (29:49):
I try to, I try. Um, so yeah, but I mean I agree with all of that in the office call. Uh, you know, and we had talked about maybe once we get through this report we can talk a little bit about trends. I think we’ve seen due to COBIT and um, and real estate in general. And um, yeah, so this next slide is just gives you, I think a lot of your listeners would be interested to see this. This is who’s taking all this space when we talk about the space getting absorbed, here’s who’s taking it. So I’m the number one taker, third party logistics and packaging companies. No big surprise there. That’s because those retailers are shifting their product to these three PLS and three PLS are taking down the space and their behalf. Right. Um, we’ve seen a big surge in three PL activity since Kobe in lots of parts of the supply chain, primarily e-commerce, food, electronics, and uh, right behind that is general retail and wholesale.
Ward Richmond (30:51):
Now you’re going to see that in a lot of those retailers are, um, signing leases because they, um, can sign longer term leases directly with the landlords and utilize their balance sheets to get better deals than a three PL who may only have a three year contract. So you’re seeing these shippers go sign the actual leaf, even though the three PL might be handling all of the inventory and, um, moving everything around. So, um, that’s something important to know and that’s why that’s 23%. But I mean, I would imagine that a significant portion of that 23% is actually being run by three PLS, even though the actual lease is getting signed by retailers, wholesalers. So, um, that three PO number could, um, really be much larger than it appears here, even though it’s still the top. They’re the top takers of space and, uh, then manufacturing is behind it. There’s been a lot of talk that there’s going to be some onshore in a near shore and a manufacturing going on because of all of this and the continue, uh, trade war. That’s, that’s happening and that seems to be heating back up again. I didn’t hear anything about it for awhile. Now it’s back.
Speaker 5 (32:04):
Right, right. Well, you know, Greg, you were, you were talking on the buzz just a couple days ago about, uh, the survey that supply chain dive covered 64%, I believe was the number of manufacturers that plan on doing some level of reassuring or near shore or near shoring. Right, right. Yeah. I mean, so many companies are moving to this China plus one, two, three or there at least looking at reassuring manufacturing or near shoring. Um, and the very least, I believe we’ll see an uptick. You know, I get nothing from making these predictions. So I believe that we’ll see uptick in industrial space used for manufacturing because companies will at least facilitate a, a secondary sourcing option. Nearshore onshore, um, something like that. Right?
Ward Richmond (32:55):
Yep. And I think you’re going to see a lot of that happening in Mexico and there should be a big uptake in activity and markets close to the Mexico border. And I’ve, I’ve actually heard, uh, Houston come up a lot and, uh, as that would be a great, uh, they, I’ve heard some people say they expect to see some big growth in Houston since due to its proximity to the border and, uh, potentially, uh, you know, being impacted by that, which would be great for Houston due to the current oil situation.
Speaker 5 (33:25):
Yep. All right
Ward Richmond (33:29):
then last but not least are, uh, we have one more slide. Yeah. Now here are the names of some of these occupiers that are taking the space and, uh, and it’s Greg’s favorite company at the top of the list. Um, I didn’t, I like, I don’t know. Um, I don’t know if that, it’s hard to track these exact numbers. We do our best to do it. I can tell you at Amazon, it’s a 6 million square foot beaten, uh, [inaudible] I can tell you in Dallas they took 1.5 million square feet and they’re about to sign another million square foot, at least what I hear. So that’s 2.5 million just in Dallas probably before June. Um, and they, they’ve been aggressively going after space that since COBIT started as Jeff Bezos, I’ve heard it was on his way to becoming the first trillionaire.
Speaker 5 (34:19):
Wow. Right. And the, and they haven’t slowed the construction, at least I haven’t heard of any slowing of the construction, uh, or even remodeling of current spaces. So they are very aggressively tackling this market. They took some, some positions in terms of how to fulfill, knowing that any harm they did to themselves or even their sellers in the short term by cutting off nonessential goods, they knew they would get back. Realizing that eCommerce, as we’ve just talked about, will come back in greater measure than it even than it even was when covert initially happened. So.
Ward Richmond (34:55):
Right. That’s a great point, Greg. And I’ve been stressing this to a lot of my clients. Um, some companies out there have been a little bit shortsighted on how to try to generate value due to COBIT. And the first strategy I think pop to everyone’s mind is let’s go get rent abatements. Let’s go see if we can defer paying rent because
Speaker 5 (35:21):
the eight our way to success,
Ward Richmond (35:23):
this is crazy. Um, exactly. And I naturally felt that way too at first and then after I let it sink in for a few weeks and say, okay, the world is not ending. Um, we’re going to get out of this. Oh man, now you have this little momentary softness in the market. Go sign some big ass leases. That’s what I’d be doing. I’m assuming you’re not about to go out of business because a COBIT, I’m not talking about those companies. They obviously need to focus on the short term and try to get all the help they can get to survive. But those companies that are, are not as worried about surviving. Um, I think it’s an opportune time to call me and go
Speaker 5 (36:04):
and they’re there for you. There you go. That, you know, that’s not unique to real estate board. I mean we’re, you know, I’m on the board of a couple of technology companies, one in the cannabis industry where demand went through the roof immediately. Um, and the other is in supply chain technology and saw a very similar thing. Those companies that were already strong or in a position to get strong, they’re taking advantage of this to separate themselves from their competition. It’s, this has a similar effect that I recall to the great recession, uh, back in 2008 to 2013. So, um, you’re, you’re right, there are a lot of really strong companies that will come out of this in much, much better position in a lot of ways.
Ward Richmond (36:54):
Yeah. And, uh, lots of Atlanta companies on here, like home Depot floor and decor, I believe is out of Atlanta. Is that right? Correct. Right. Um, and I mean that, I went to Lowe’s the other day. They’re on this list of top occupiers. Uh, I started a garden in my backyard with my six year old daughter. Um, I’ve never done that.
Speaker 5 (37:17):
Ward Richmond (37:17):
Yeah, I mean it’s awesome. Yeah, we do. I just went, Lowe’s is pretty close. It was the closest one of all those big, you know, gardening type places next to my house and he go there and it’s packed. Yeah. Um, so super, um, super exciting to see these companies on here. They’re getting after it and I think, and I’ve heard that in general, there was pretty big slowdown in activity in April and now, um, it’s heating back up again and especially on the larger deals, uh, around e-commerce food.
Speaker 5 (37:50):
Yeah. Yeah. Interesting. I mean, how many companies have seen an uptick? Walmart had a 74% increase in e-commerce, right. Sales, right.
Scott Luton (38:03):
Period. And they’re obviously making the announcement of the one day delivery. I don’t have, I can’t remember what they named that service thing. Uh, it’s something obviously that competes with Amazon prime, but they sped up that timeframe because of everything that was taking place with the quarantine and the ramp up in, uh, and as war put it folks that typically didn’t like to get their groceries or other items delivered. They like being in the stores. Right. Folks are finding how convenient it is, um, to get all that stuff delivered to your home. So it’ll be, you know, as we’ve said before, Greg, it’s really interesting to see Walmart take all the punches as taken in recent years as it tries to figure out its e-commerce strategy and, and you know, make some breakthrough moments in the last, in the, you know, especially in the last 12 months or so. So it’s really neat to see. All right, so for folks that, um, uh, are viewing this video, you can clearly have you got ward Richmond’s contact information. Um, and if you are listening to this episode, maybe you can check him firstname.lastname@example.org for content resources. And of course if you want to connect with him, um, just want to point that out. But, but we’re not done with ward just yet cause we want to make sure, uh, Greg from current market activity, uh, give us an observation or two there, right? Yeah,
Speaker 5 (39:24):
yeah. Tell us about the, uh, tell us what you’re seeing in terms of, you know, what’s going on and maybe even, I know you don’t have a crystal ball, but maybe even what you see coming,
Ward Richmond (39:38):
right? Yeah. So I mean, one thing to think about is everyone’s having to change the way they operate. So, um, they’re doing temperature checks. These warehouses, if there’s some kind of a, you know, there’s some people getting sick, you might have to go clean these warehouses. That could be a two to three day process for 500,000 square foot distribution center. Uh, there’s been pay hikes for the workers, um, for, uh, these essential employees. They’re going out there and working in these warehouses. I’ve been in an Amazon warehouse and I mean, I, I can only imagine, uh, the fear that some of those people might, might feel when they walk in there. The beginning of all of this, I mean, I felt nervous going to the gas station because my, my uncle got me paranoid about touching the gas pump. And then I can only imagine going into an Amazon distribution center and how that must feel.
Ward Richmond (40:31):
So I’m there training all of these employees on how to promote social distancing and restructuring the flow of employees that’s happening in all everything, every sector of commercial real estate, from multifamily apartment complexes to retail to um, office and industrial. Like you’re having to have this new PLO and put up these screens in elevators. If you have elevators, how many people can be in. Um, um, the, my yoga class, you got to wear a mat. We had to wear a mask to go in. It’s a locally owned yoga place so we could actually practice without the mask, which was great. So I didn’t pass out. But um, there’s like core power yoga where I go in Atlanta is a chain, so they have like 20 locations across the country. I’m a member there because how often I travel and um, they, I’ve heard that they actually make you wear a mask when you do yoga. Um, so, eh, I know some, some places are having to do that and just, it’s just going to vary from company to company, but you have to take all these precautions and then, yeah.
Scott Luton (41:38):
Hey, real quick, real quick. Uh, going back to work force, um, some of the things we’re seeing there in the U S government has frozen certain aspects of the aid of the American with disabilities act so that employers could take temperature of their workforce as they enter the plants. That’s right.
Ward Richmond (41:58):
Yep. Um, yeah, that’s happening. And um, and that’s happening everywhere. They’re having a yoga today. Um, they took my temperature there right when I walked in. So was it
Scott Luton (42:10):
just out of curiosity,
Ward Richmond (42:12):
98.7, I don’t know. Thankfully I’m feeling pretty good. So office space that, that’s kind of kind of retail office. Little scary. I think multifamily scary because a lot of people that are renting apartments have been living month to month evidently, and they don’t have jobs or they’re getting furloughed and so many people are getting laid off. They’re not able to pay the rent. That’s what I, you know, the concern is their retail. Um, you know, they’re, they’ve had to, they’ve been forced, forced to be shut down. I was talking to my friends. Uh, I have from my days as a musician, I have a lot of bar owner friends and cause we, my band used to play in a lot of bars, nightclubs and um, so I still am just really tied into that those people in that industry. And they can open back up this Friday in Dallas, the bars can, but one of my good friends, she has a couple of bars in Dallas and she’s not even gonna open back up because you have to operate at 25% capacity and you can’t like stand next to the bar. And she’s like, what, what am I going to do when they get drunk at the bar? And then I’m trying to tell him to not stand at the bar. Like, I mean it sounds, it sounds really tough on a lot of these businesses and uh, I know there’s been, I mean it’s just, it’s just kind of weird.
Scott Luton (43:34):
You guys have solutions
Ward Richmond (43:35):
for sure. There’s a lot of restaurants and bars that were barely making it month to month staying alive and now you’ve got to operate at 25%. I don’t understand really how it works. Um, but that being said, offices are also going to change. I have many close friends and clients that have hundreds, if not thousands of employees that have lots of office space. And I do a lot of office space deals too because a lot of my clients have a lot of office space. Um, and they’re rethinking it. So different things that are happening there, they’re shifting presence. They’re doing eight days and B days where certain maybe certain percentage of employees are continue to work from home full time. A certain percentage have to come back to the office, but they’re coming on different days. Um, another thing, I mean, they’re shutting down thing.
Ward Richmond (44:23):
All these trendy things that used to do like have, um, more or like a smaller per square foot per person to maximize, to get more bang for your buck, not have to take quite as much office space. They were doing, sharing a work desk workspaces and all of that. Like that’s going to have to go in the opposite direction. So they’re going to have to have more per square foot per person. And they’re gonna have to have dedicated desk or you’re going to have to clean the desk every time someone leaves it. Right? So that’s going to be kind of different. And I have one of my good friends, they have four or five offices across the country and he told me there’s subways in all our space now and they’re only going to just, they’re just going to leave some dedicated meeting space for their employees to use for dedicated meetings.
Ward Richmond (45:11):
And if he wants to get the whole company together, he’ll go rent out, uh, patios at, uh, restaurants to get groups of less than 50 together. Um, so public transportation, something else that’s going to be a concern in inner city urban environments that we’re becoming the thing and everybody’s moving back to the city now. Um, there might be a little bit of a move back to the suburbs because there’s going to be more room to park. They’re not going to have to put their employees at risk writing on trains. And, um, everybody’s very concerned about the health and wellbeing and the safety. And of course, um, just the, you know, the culture. And how they’re going to make their employees feel and they want their employees to feel they’re being taken care of.
Scott Luton (45:56):
That is a sale line. Sorry, Scott, go ahead. I was going to say that that’s a silver lining and all of this, right? We’ve been banging the drum for a while. You know? Of course the has gotta be the frontline medical folks gotta be protected first responders, but man, you know the, in the end supply chain, the truck drivers, the pickers, Packers, you name it, they keep the country moving. They keep the world moving and wrapping them up and protect them. I hope that that’s one of the big silver linings that comes out of all of this. Greg, what were you going to say?
Speaker 5 (46:27):
E-bikes? Sales are up dramatically because people are trying to avoid public transportation. There was already concerns about what the term I heard used by some of the commercial real estate people. I know Phantom leases where the space had already been abandoned, but the lease had not gone up. The last company that I had, one of the things that we were working on was how to tell whether space that was leased was actually being used so that the landlord would not be caught off guard when the lease, uh, you know, when the lease turned up. So this will be the opposite of good news for office space. I can assure you of that.
Ward Richmond (47:05):
The only thing, the only thing they have going for it is that you’re going to have to take more office space per person than you used to. And that might have some balancing effects. But the overall impact I would guess is going to be net negative. Um, in terms of spend on office space, it’s going to go down, therefore pricing will go down. Um, and I mean the demands definitely. I, it just, I don’t see it not going down. Uh, and I, people like working from home, uh, we ran a survey and it showed that like the majority of people wanted to work from home, I believe, three days a week. And I, that’s what I answered. And I already, I mean I already worked from home a lot and I was on the road all the time anyway. So I was very accustomed to just being a very remote worker.
Ward Richmond (47:51):
Right. Um, and um, but a lot of people never got to experience the freedom of that and now they have and they don’t want to go back and they’re more efficient. They’re getting more work done and they actually, in some cases they’re like working three extra hours a day cause they’re not traveling. So I mean their, their employers are pretty pumped about it. And, um, for those people, I would remind you that you need to control your schedule when you have that kind of freedom. Like I’ve had things we had for a long time with my type of job and, uh, you need to make sure you’re not working yourself to death and you block your time and as needed and appropriately so that you’re not working too hard because,
Scott Luton (48:29):
so we got it. Hey, so real quick. Uh, so in light of that picture you painted where, um, you know, there won’t be as much demand, you don’t think for real estate, certainly office space, um, while industrial space, you know, given e-commerce and other trends, you got partner with a specialized resource to make sure that you’re getting the full picture right and, and, and making sure you have all options at the table that, that, that it seems to me that special specialization right now, whether it’s a three PL, whether it’s a real estate broker or resource or, or many other things, it perhaps is extreme is more important than, than what it has been recent months. Agreed. Or
Ward Richmond (49:14):
it’s equally important, but now people are just finally maybe realizing it for the first time. But yeah,
Scott Luton (49:23):
Speaker 5 (49:23):
I think I agree. I agree complete with completely with that. And I think it also, it’s rare to find someone like ward who has a realistic perspective. I don’t want to say realistic but balanced perspective on the marketplace. What I find very often is that, and know this is the nature of the person who does the job. Real estate agents are inherently optimistic and they often ignore the realities of the marketplace because they want to believe that it will always be or takes a very balanced approach. He knows not just this, the real estate business, he knows the supply chain business. And he can balance that perspective from knowing that as well. So if, if you don’t get help from ward, get help from somebody like ward who has that balanced perspective or triangulate amongst a number of professionals to try and get a balanced perspective.
Scott Luton (50:16):
Love that. All right, so
Ward Richmond (50:18):
you so much for the kind words brother.
Scott Luton (50:20):
You bet man. Hey, it’s, it’s all genuine or you know, we wouldn’t be saying it especially right now. Hey, um, so let’s do this. Uh, I know for the sake of time, I know where you’ve got a slew of meetings, uh, before we wrap up here or before we wrap up the day, let’s make sure that folks know how to get in touch with you. So what, where can they find you?
Ward Richmond (50:43):
But they can find email@example.com. And uh, that’s the best man. Um, we’ve, I’ve got everything there from Mark the market overview. We discussed, I have a DFW specific market overview. Um, all the podcasts that we’ve done together up on the website, I have a video telling you exactly what our team does and case studies showing how we’ve generated tens of millions of dollars in savings for our clients. Um, who includes some of the most incredible companies in the world, like FedEx and writer DB, Schenker, TFI international and Keller logistics, Palmer logistics. We have so many incredible customers. We’re very thankful during this time to, um, be working with these companies and uh, helping them to take their, uh, supply chains to the next level.
Scott Luton (51:28):
The syndicate, the supply chain syndicate. That’s your team, right?
Ward Richmond (51:33):
Yeah, that’s what we call ourselves.
Scott Luton (51:35):
And I love that video. Y’all did. I think I’ll publish that probably six months or so. You know, uh, it really personalizes the team and, and y’all have got a ton of passion and a ton of expertise, so we always love to have your own. And look forward to reconnecting with you again soon. Greg, I got an a with ward still here. Before we wrap up, I got to ask you for your one key hot take before we, we conclude today’s session.
Speaker 5 (52:00):
Um, well for industrial space and, and a lot of commercial space, it’s going to get a lot better for office space. I’m a firm believer it’s going to get a lot worse, but the most important hot take for today is ward Richmond. Com.
Scott Luton (52:18):
Always a pleasure
Speaker 5 (52:20):
trained professional at what he does, no matter what it is. So check out his music and I think you’ll enjoy it.
Scott Luton (52:25):
Awesome. Hey Warren, thanks so much for joining us. Sit tight for a second. We’re going to wrap up and lightning round speed. Give us two minutes. We’ve got a couple upcoming events that I’m, I’m sure if you’re aware of war, what we’ve got tracking here. So starting with supply chain trivia, who would have thought supply chain trivia would be such a thing? However, this has been popular. Folks want to, they want to kind of distress a war. Do you need to jump into competition? I bet you’d be a fierce competitor. Uh, next round is June 3rd, 9:30 AM Eastern daylight time. We’re doing that Greg, because it’s our Eastern hemisphere edition, right? Yeah,
Speaker 5 (53:01):
that’s right. This is our Eastern hemisphere edition. We had a three day Grundy, uh, this, this past week or past, uh, round and the round before Nickeel Wadhwa both doing great at two 30 in the morning. So we, we want to see how good they are during office hours.
Scott Luton (53:19):
That’s right. Our current champ is Coby cannoli. He didn’t miss a single question last go round. So, uh, we’re looking forward to partnering with say pics, which is a great group, doing big things in supply chain across the continent of Africa. So join us June 3rd at 9:30 AM Eastern daylight time. And then, uh, let’s see, before we even get to trivia, we’ve got, uh, Mike Rosewall with Gardner and that their top 25 supply paint for 2020 was just released in the last couple of days putting us on May 27th. What’s he going to talk about, Greg?
Speaker 5 (53:53):
Well, he’s going to talk about some of the key takeaways from that. Look, if you’re in the supply chain industry, I would encourage you reward to have your clients. Uh, take a look at this because we’re going to talk about some of the key takeaways. You don’t have to pay for a report, you don’t have to be a Gartner subscriber, but you can still hear from the top retail and um, and supply chain analyst at Gartner, Mike Griswold and learn something that will benefit your business. Whether you’re big or small, your retailer, manufacturer, distributor or otherwise you’re going to learn something that’s going to,
Scott Luton (54:27):
to help you improve your business. Hey Mike Griswold is the Tom Brady of supply chain ranking. Is that Greg? I know that we probably shouldn’t use,
Speaker 5 (54:35):
I probably appreciate John wooden but most people don’t know who John wooden is. So I think he’d take Tom Brady. Yeah, he’s also a basketball coach. Another another professional with a side hustle. Yup. It was back as well.
Scott Luton (54:49):
Um, micro as well. Alright. So ward, we got count on you being there cause I bet you can contribute a lot to the conversation with these webinars. We always have a very loudly Q and a, both comments and observations as well as questions from the audience. So we invite all of our friends to join us. May 27th, uh, at 12 noon Eastern daylight time supply chain, real estate.com, supply chain now, radio.com. Those are the places we’ll have it in the show notes, a ward. Uh, I’m going to give you the last word before we wrap up here.
Ward Richmond (55:22):
All right, well everybody take care out there. Stay safe. And um, just, you know, I think it’s a great time to keep your head down. And if you look at the history of business in the United States of America, some of the most incredible companies have been formed in moments like this at times of economic recessions. That’s when you have an opportunity to go make some big moves and uh, take advantage of, uh, the, you know, this, this current landscape. So I think it’s important to just stay focused and stay productive. And I’m hopeful that this all, um, hopefully come to an end and turn to some sort of normalcy soon.
Scott Luton (56:04):
That’s right. I couldn’t imagine that the new normal is around the corner. We’ve seen some, some great positivity here. Uh, the light in the tunnel brighter, brighter days do lie ahead ward. I loved how you ended it and Greg, on that note, uh, we want to tell everybody, thanks for joining us here today. Uh, stay safe and join us next time here on supply chain now. Thanks everybody. Thanks everybody. Thanks.
Would you rather watch the show in action? Watch as Scott and Greg welcome Ward Richmond to Supply Chain Now through our YouTube channel.
Ward Richmond is an Executive Vice President and shareholder at Colliers International (NASDAQ: CIGI). His team within Colliers specializes in working with C-level executives and operational specialists to develop and execute corporate real estate strategies on a local and global basis in an effort to maximize operational efficiencies and value. Ward’s primary focus is representing dominant logistics companies in the acquisition and disposition of “supply chain real estate”: distribution centers, truck terminals, last mile hubs, manufacturing facilities and industrial land. With over 12 years of experience, Ward has developed an unparalleled understanding of Supply Chain Real Estate strategy via negotiating 500+ transactions, globally, in 50+ cities while generating millions in value for his customers. Ward enjoys reading, writing and speaking about eCommerce and the logistics industry. He’s been featured on podcasts like the GaryVee Audio Experience and interviewed by multiple publications including The Wall Street Journal. Ward has also been a featured speaker at multiple real estate and logistics conferences around the globe. Ward currently serves on the steering committee for the Colliers International Logistics & Transportation Solutions Group and is an active member of IWLA, IAMC, and the semi-legendary, Texas Warehouse Association. Be sure to check out Ward’s blog at: www.SupplyChainRealEstate.com and learn more about Colliers International here: https://www2.colliers.com/en
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