For the large corporation seeking to maximize supply chain efficiency, defining state of the art in distribution facilities today is a moving target. So said John DiCola, senior vice president of investments at Keystone Property Trust, West Conshohocken, Pennsylvania. Keystone is building a new 772,000-square-foot distribution center for Home Depot on 87 acres in the New Jersey Turnpike Exit 8A submarket, Cranbury, New Jersey. The initial term of the lease is 12 years and Keystone will retain ownership of the asset.
“The standard today runs 32- to 36-foot clear,” said DiCola. “The facility needs to be cross-docked to allow for the quick movement of goods from one side to the other, but it cannot be too deep, perhaps a 600-foot depth or less, with an ESFR sprinkler system. Lighting should be 30 candles, 30 inches off the floor. In a large facility, perhaps five percent of the space is office.
“There is clearly no rule of thumb for folks pushing for a value-added facility, where goods will not be stored for very long,” he said. “So there is the notion of going toward a smaller, narrower building, almost like a modern truck terminal.”
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At the new facility, Home Depot will be distributing to its Northeast region from New England down to the mid-Atlantic area. The company will be serving 200 stores from this one facility. “Virtually everything arriving at the facility will be coming in from overseas,” said DiCola. “It comes in waves, where several container ships will arrive at once. The goods are taken down to the facility, the facility swells up and as it gets depleted, the next surge comes in from shipments overseas.”
The manner in which goods arrive at this facility created certain design challenges for Keystone. Besides the facility itself, with 150 dock doors, there was a requirement for 238 car parking spaces and 434 trailer parking spaces. “The trend we are seeing for the true import facility is for a lot of site truck parking,” he said. “For the developer it becomes problematic, because the more space you allocate for truck parking, the less you have for building. It doesn’t stay in lock-step with your allowable building density. It is a challenge for the development community and it is a challenge for municipalities to understand why so much parking is required.”
Does Keystone have concerns that the build-to-suit it is creating for Home Depot will be obsolete by the time the lease runs out 12 years hence? Said DiCola: “We tend to hold our product and we have an eye toward the potential second generation tenant—whether it is five, 10 or 15 years out.” He pointed out that because the Home Depot facility is not overly specialized, its design benefits could be transferred easily to a new tenant.
Silicon Valley’s Incredible Shrinking Offices
Personal workspace in Silicon Valley is shrinking to eight feet by eight feet and indications are that it could fall further to six feet by eight feet or even six feet by six feet, according to Reel Grobman & Associates, an interior planning and design firm, headquartered in San Jose, California.
According to the firm, less office space means tighter confines for high-tech employees, who are already dealing with the typical office complaints of noise, inconsistent climate control and lack of natural light. While the amount of real estate dedicated to each employee is being reduced, there are fewer workers typically in the office at the same time. According to the design firm, between 40 percent and 60 percent of the time, workers are elsewhere.
The firm also reported that while there is a glut of space in Silicon Valley, small office spaces have become increasingly popular to fledgling businesses. Landlords are discovering that demand is relatively strong for smaller spaces of approximately 2,000 square feet, for start-up technology companies. Such businesses are self-funded, at a pre-venture capital state, and are in need of small spaces with partitions for workers and secure network rooms. Also, in San Francisco, offices in the size range of 3,000 to 8,000 square feet are attracting similar interest.
The designer firm warns that to be competitive in this market, landlords must make the space as close to “plug-and-play” as possible. And for companies looking to unload more space, that means investing more money up front to make the space appeal to a number of potential tenants. www.reelgrobman.com
Corporate Real Estate Execs Optimistic But Challenged by Space Overhang
The good news and the bad news about a recent Jones Lang LaSalle survey is that corporate real estate executives are “cautiously optimistic” about the economy but are struggling with excess space.
Jones Lang LaSalle conducted a survey of 75 leading CRE executives from a cross-section of primarily Fortune 500 companies. Of that number, 66 percent believe their companies’ prospects will improve dramatically or somewhat over the next year. But even with these optimistic economic projections, CRE executives report that excess space remains a problem. More than one-third (35 percent) report that their excess capacity is more than 15 percent of their current portfolio. About 60 percent claim levels above 10 percent. Based on consensus economic growth expectations, this could represent two to three years of supply.
Relatively high levels of excess space may be causing CRE executives to be somewhat cautious in projecting when they will finally return to the market for additional space. According to the Jones Lang LaSalle survey, two-thirds of CRE executives expect to add space in 2005; approximately 20 percent expect to need space imminently in 2003 or 2004.
“It is our approximation that five to 10 million square feet of commercial space in the U.S. currently houses telemarketing call centers and service providers. With the new telemarketing limits, many of these centers will be forced to reduce their real estate or go out of business. A huge amount of square footage will come back into the market. With 50 million Americans already registered for Do-Not-Call, if only 30 percent of the square footage occupied by call centers were to become vacant over the next two years, that would be an influx of 1.5 to 3 million square feet back on the market. Call-center office space typically has large floorplates, which often don’t suit a typical office tenant, and the challenge will be in marketing this vacant space to the rest of the market.” — Tom Gustafson, Vice President of Colliers International.
George D. Livingston, president, NAI Realvest Partners, Inc., Maitland, Florida, has identified 12 corporate location trends to watch as the economy and confidence improves and as corporations again enter the real estate markets. They are:
Activity level increasing. Over the past two years, the number of corporate relocation deals has been significantly depressed. The majority of deals were expansions and occasional relocations by small to medium-size companies and the consolidation of larger companies. As determined from a variety of different sources, Livingston said that is now turning around and activity levels are increasing.
Today’s active industries. Among today’s locationally active industries are health-related, food processing, auto parts, data centers, shared services centers, call center consolidation, distribution (especially retail) and outsourcing firms.
Most active regions. The hottest areas are the Southeast from the Carolinas to Florida and the South Central Region from Alabama through Tennessee.
Impact of 9/11 is ongoing. The impact of 9/11 will be ongoing, with ERM (Enterprise Risk Management) becoming a major force in shaping location strategy. Actions likely to be embraced include: real time data replication; redundant operations; distributed work; decentralization; small, multiple operations; grow elsewhere; shift personnel within multiple buildings; relocation of back offices/critical parts manufacturing from offshore to U.S. or from one continent to anther; geography of supply chain better managed; increase in safety stock for manufacturers; increase in outsourcing of disaster recovery and other operations; likely to be less interested in downtown locations; site security; and terrorist insurance likely to be an issue.
Labor markets will again assume primacy in most corporate location decisions. While this trend may be experiencing a temporary lull, once the economy kicks up, there will again be a severe national shortage across skillsets/industries.
Logistics has emerged as a prime locational influence.
Electric power is an influential locational variable. Electric power is exerting greater influence over location decisions, even for companies that are not that energy-intensive. The issues include: cost, price stability, capacity, reliability and dual power feed.
Telecommunications is a crucial locational factor. This applies to call centers, other back offices, data centers and some manufacturing plants.
Decision cycle for establishing new facilities continues to shrink. This trend will place far greater emphasis on available buildings, construction time and permit approval time.
Small town/rural areas are becoming increasingly popular locations.
Offshore locations will continue to comprise viable options for many companies.
High tech requires specialized criteria. These criteria include critical mass of companies, people, research, universities, vendors and venture capital; perceived quality of life; image/reputation; campus sites; and air access. If an area is not among the best perceived places in the U.S. to live, it must have unique, industry-specific assets to attract high tech.
www.realvest.com
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By Ron Derven, co-editor of Development magazine
