By Jim Hazard, SIOR and Susan Arledge, SIOR
E Smith Realty Partners
Many distribution center locations are driven by the results of a supply chain study. Other follow where competitors tend to locate and some simply select the major market hubs. While focusing on the obvious choice for a DC, too few select locations where the company will be most competitive, as well as where the ongoing cost of the center will be the most economical.
There has been significant focus on how construction at the twelve (12) primary inland ports is almost twice the national average. Additionally, staple hubs like Louisville, Columbus and Reno are seeing record growth in speculative construction with minimal vacancy.
Those who select the typical major markets will quickly discover the required labor to operate these fulfillment centers might be the most expensive and hardest to attract, train and retain. The celebration of a cheap real estate transaction is over within days, while a poor labor decision can cripple a company indefinitely.
This is most easily understood by comparing a $0.50/hour reduction in wage across your entire workforce as opposed to $0.50/sf rent reduction for the distribution center.
Over the past few years, a distribution center operator’s highest pain threshold has been the inability to meet peak labor requirements for the holiday rush and many have found that labor rates are actually $0.75 – $1.00/hour higher than budgeted. Companies are being required to post job openings as often as 10-20 times for each hire.
This site selection process has been broken for quite some time and has proven costly for many organizations. Instead, companies must take a hard look at labor costs for a profitable and efficient distribution center. Since a new fulfillment center is often a 7-15 year commitment, companies must consider markets that can meet location and supply chain needs, but also provide sustainable and cost effective labor.
E Smith Realty’s Retail Distribution and E-Commerce Team believes in a Total Cost of Occupancy approach, with a heavy weight on transportation AND labor. Our Team focuses on providing not only the real estate solutions, but site selection, labor and wage comparisons, freight, fuel and trucking costs, as well as possible incentives to make a complete decision.
The explosion of e-commerce has had a major impact on distribution center space growth. As an example, the Dallas-Ft. Worth market is seeing tremendous new construction to keep up with e-commerce growth. There are currently five (5) 1 million square foot projects under construction.
Below is a look at the Top 20 Distribution Center Growth Markets for the next five years based on the region’s anticipated availability of warehouse workers and truck drivers.