Entitlement process, land constraints seen as key obstacles in nation's booming industrial market
By Ashley Gurbal Kritzer
Tampa Bay Business Journal
Published: Jul 22, 2020

Land constraints and entitlements have been identified as some of the biggest challenges within the booming industrial market.

A recent survey by commercial real estate firm Jones Lange Lasalle Inc. found among more than 720 logistics real estate professionals across the globe, 43% considered limited availability of entitled land to be the No. 1 constraint on occupier demand. With more than 660 million square feet of tenant demand and record-low vacancy, industrial developers frequently can't build warehouse space fast enough, but finding the right sites to develop is getting more difficult.

Industrial conversion projects, such as at vacant retail properties, are also becoming more popular. CBRE reported in July 2020 there were 59 retail-to-industrial conversions that had been completed, proposed or were underway, an increase from 24 such projects in January 2019.

But getting those sites entitled presents its own challenges.

Craig Meyer, president of America industrial brokerage at JLL, said converting a vacant mall or other retail property into a last-mile distribution facility is frequently not simple. Most of those properties are zoned exclusively for retail, or explicitly don't permit industrial uses.

During a rezoning for such a conversion, concerns from residents and city officials about things like truck noise and exhaust are common. And former retail developments sought for industrial conversion are frequently closer in town — ideal to deliver goods to customers but, perhaps, not always supported by nearby residents. RECOMMENDED COMMERCIAL REAL ESTATE The industrial revolution: How this component of the real estate sector has become king of th

"You have stakeholders that may not want an industrial use there, stakeholders that also may want what they perceive to be a higher tax base," said Erik Foster, principal and head of industrial capital markets at commercial real estate firm Avison Young. "If you think about a retail asset transitioning to an industrial asset, is the local tax revenue going to be the same? Oftentimes, the answer is no, so there is some resistance."

Meyer said some developers are looking to repurpose a vacant retail property, such as a mall, into multiple uses that include, but aren't limited to, industrial space.

New approaches to distribution development globally may signal what's to come in the United States that could help address concerns around land constraints and costs, and getting products to customers in big cities.

In London, Meyer said some residential developments have a floor dedicated to a logistics use, to receive and deliver packages for nearby residents. In Singapore, a development called Supply Chain City includes multi-story logistics centers, including subterranean floors with cold and freezer storage, and warehouses staffed by robots.

"Last mile isn’t one thing — it’s many, many things," Meyer said.

The National Retail Federation's June forecast says it expects non-store and online sales will grow between 18% and 23% this year, totaling between $1.09 trillion and $1.13 trillion. That increased demand will likely require new approaches by developers to get products to customers, especially in denser cities.

Seattle-based e-commerce giant Amazon.com Inc., by far the biggest occupier of industrial space here, frequently develops multi-story warehouse buildings with robotics technology. Building taller can also mean less land area is needed.

But, Meyer said, a lot of U.S. zoning codes don't necessarily contemplate more modern "last-mile" warehouse facilities, adding a potential new challenge as the sector evolves.

Foster said he's also seeing more demand for trailer storage, truck terminals and transloading facilities, as they allow companies to organize their supply chains and cut down on delivery times.

Earlier this year, Avison Young brokered the sale of a national 1.75-million-square-foot trucking terminal portfolio owned by Oak Brook, Illinois, real estate firm CenterPoint Properties. The deal included 53 truck terminals in high-profile industrial markets like Chicago, Atlanta, Dallas, New Jersey, New York and Philadelphia.

Foster said existing trucking terminal sites are finite, and that type of use isn't being zoned for much today. Investors, as a result, are having to cast a very wide net for opportunities, including in secondary and tertiary markets, Foster said.