Archives for May 2023

Earlier this year a coalition of more than 60 environmental, labor, community and academic groups called for a moratorium of up to two years on new warehouse development in Southern California’s Inland Empire, demanding in an open letter to Gov. Gavin Newsom that the governor declare the market’s one billion square foot warehouse sprawl a “public health emergency.”

According to a white paper the groups referenced in their letter, the logistics traffic from Inland Empire’s growing network of more than 4,000 warehouses generates more than 200 million truck trips annually—at a rate of more than 600K per day—spewing more than 15 billion pounds of carbon dioxide, 30 billion pounds of nitrous oxide and 300K pounds of diesel particulate matter annually into the nation’s most polluted air.

While this pushback to warehouse development is most common in California, protests have been springing up in communities across the country as local residents tire of the truck traffic and pollution these facilities tend to attract.

More research has emerged from the Environmental Defense Fund that supports these objections. In particular, locals are wary of the diesel fuel trucks use, which may affect the health of nearby residents and employees, especially those of Color or low wealth, the EDF said in a new report.

Following are four useful questions to help understand what’s needed to make the vital warehouse segment safer and more appealing to all:

How Widespread is the Concern? 

More than 15 million people live within a half-mile of a warehouse in 10 states. Those who live in Black, Latino, Asian and American Indian communities as well as areas of low wealth are disproportionately exposed to this pollution.

Another reason for concern is the expectation that whatever is needed should be delivered as fast as possible. Or as Aileen Nowlan, EDF’s U.S. Policy Director, Global Clean Air Initiative, explains, “As corporations taught consumers to expect just-in-time products and delivery, warehouses have moved closer to people’s homes in more communities than ever before, bringing harmful air pollution from trucks with them,” she says, adding,  “It’s important to understand who is bearing the brunt of health burdens associated with living close to heavy truck traffic in order to develop and implement smart, targeted policies that protect public health and reduce emissions.”

Where are Burdens Greater?

EDF researchers combined warehouse industry data with a Geospatial information System (GIS) application known as Proximity Mapping, which applies areal apportionment to estimate the characteristics of populations living near specific facilities and pollution sources, using the U.S. Census Bureau’s American Community Survey 5-Year estimates. Among the findings of the 10 states EDF analyzed were that about 17,600 warehouses are located within 10 states; more than 1 million children under age 5 live within a half-mile of warehouses; warehouse proliferation doesn’t spread the risk evenly. In some states like Illinois, Massachusetts and Colorado, the concentration of Black and Latino residents living near warehouses is nearly double the state average.

What is the Challenge of Air Pollution From Diesel Trucks?

While warehouses contribute to the economy through construction and other employment jobs, the trucks used to deliver goods daily—and often multiple times a day—may bring with them air pollution, whether moving or idling. These pollutants may be linked to health issues such as a risk of developing childhood asthma, heart disease, adverse birth outcomes such as low weight, cognitive decline and strokes.

What Affordable Solutions are Available? 

The report cites several potential changes that can help such as increased air quality monitoring to provide a better understanding of air pollution around warehouses and a switch to investments in zero-emission transporting. Another useful change would be a database of current and proposed warehouses to make changes in existing ones and improve locations of future facilities by communities helping to plan better.

Third, zero-emissions options are possible for delivery vans, yard trucks and regional haul trucks. Already, manufacturers are investing billions to expand zero-emissions for long-haul trucking.

Fourth, EPA’s recently proposed tailpipe regulation was designed to ensure that up to half of new urban delivery and freight vehicles sold by 2032 will be zero-emitting vehicles. “Communities deserve to know more about the businesses that operate near their homes and schools, especially if they pose a health threat,” Nowlan says. “Solutions exist today to reduce truck-related air pollution and protect public health.”

Source: “This is Why Some Communities Are Pushing Back Against Warehouse Development“

Early in the pandemic, the future seemed clear. People would increasingly buy online because stores were closed and unsafe. Plus, it was oh, so convenient for consumers, and think of the money the retailers would save by centralizing major distribution centers, setting up last-mile warehouses at in-fill urban and exurban locations, and pushing for same-day or next-day delivery. Everything—white goods, clothing, consumer electronics, even basic groceries—would be on trucks and step-vans crisscrossing metro areas, bringing people what they wanted.

But then, lockdowns ended, vaccines increased, and even though Covid remained the third largest cause of death in the country, hundreds of millions decided that being social animals really was a basic characteristic. Retailers, too, learned some important lessons, one being that having brick-and-mortar presence throughout the country had a lot of benefits.

It all has proved that while you can take retail out of the store, you can’t take the store out of retail.

NUMBERS SURGE AND THEN RECEDE Many analysts—and, let’s be truthful, a lot of people who had something to gain from pushing an online narrative—were sure that the pandemic had compressed many years of trend into a few months. E-commerce would become the dominant form of retail.

It had gone from 11.1% of total sales in the fourth quarter of 2019 to 16.4% by June 2020, according to Census Bureau data. Clearly things would only continue to grow.

“It’s a very impressive trendline,” Marc Werner, CEO of GhostBed/Nature’s Sleep, says. “Let’s not forget that. I’m an omnichannel guy. I’ve sold everything to every retailer out there.” His grandfather was the Werner who started the well-known ladder company.

And not to disparage the shift, but when it comes to consumers, things change. The pressure to stay indoors and away from others dissipated, people looked to find one another—friends, family, and even strangers—in the public square, including shopping.

The percentage of sales going through e-commerce dropped to 14.7% by the middle of 2022. Still elevated, no doubt, as a pre-pandemic trendline would have brought the use to about 13%, but the slope of the line came back to roughly where it had been. There was an advance and then the pace returned to what had been normal.

Survey data from CapGemini’s 2023 consumer behavior study shows that by November 2022, the percentage of consumers shopping at physical stores was about par with where it had been pre-pandemic. Since then, with inflation driving up the cost of living, that has gone down a few percentage points, but then people are also shopping less online.

What the industry was remembering, something the buying public hadn’t forgotten, was that having retail being where people were was a benefit.

“It’s an important part of the community,” says Emily Arft, a senior associate at Green Street covering the mall sector. “You get a lot of essential items from these retail properties. There’s daily activation at these properties and they’re essential to daily retail habits. Core retail is important in that sense. That’s one reason Walmart has been able to compete with Amazon, because they have the physical footage.”

E-commerce is also not a pleasant walk through the park. Getting the practice right is hard. Costly, too, even though the assumption is often that it should be cheaper than brick-and-mortar. Even without stores, there is real estate, overhead, many employees, and it is harder to break through online than putting up a website.

“If you’re a pure play e-commerce, it is expensive and time consuming to reach people,” Stephanie Cegielski, vice president of research at the International Council of Shopping Centers (ICSC), says. “You have to do the paid ads, the targeted ads, and Google and others are saying ad spend is being cut. For a store, it’s front-of-mind for somebody walking past it. they’re paying rent for that space, but not advertising for it.”

BRICK-AND-MORTAR BREAD-AND-BUTTER

Physical stores can be overbuilt, as many retail chains of all stripes have found. But properly placed, they offer many benefits.

You can think of effectively placed stores as advertising that pays its own way with profits. Like a giant billboard that people see as they go by. “For a store, it’s front-of-mind for somebody walking past it. they’re paying rent for that space, but not advertising for it,” Cegielski added. “We studied it in 2018 and will study it again, but we found that if a store opened in a market, their online sales in that market increased 37%. We found that if a store closes in that market, online sales decrease 33% in that market. It’s out of sight, out of mind.”

“We have never felt that online shopping is something to fight, we see it as a compliment to the brand,” says Spencer Jordan, senior vice president of leasing at the Easton Town Center in Columbus, Ohio, an upscale regional shopping complex. “Even before the pandemic, we were working with online-only brands to get into brick and mortar. The Halo effect is something we’re talking about more and more.”

Being in a place also helps with customer acquisition costs. Not only do consumers go by stores, they go to buy at stores. “Brick-and-mortar, with its set rent and proven returns, has been helpful in driving not only customers to the store for sales but to the website,” Jordan says. Easton has had e-commerce companies open pop-up locations “and see online growth of 38% to 40% in our market.”

In a modern expression of irony, traditional physical retail offers convenience that e-commerce was supposed to solve. “There is value to having that store there to make it quick,” says Cegielski. “We all want free shipping, we want it quickly, but sometimes it’s worth driving 30 minutes to do it all once.”

In-place retail also goes beyond that. “People want not only convenience, but they want customer experience,” says Brandon Duff, senior vice president and managing director in Northmarq’s Chicago office.

Getting the right experience is sometimes only possible in person and people are, well, hungry for it.

“I think the best barometer is really dining and entertainment,” explains Joseph Coradino, CEO of PREIT, a Pennsylvania REIT with retail properties across top metropolitan areas. “We’re seeing 20% increases year over year, 22 over 21. That number in some of our properties goes over 40%. People are getting out and they’re shopping, dining, entertaining, they’re out there.”

Coradino also echoes how pure-play e-commerce companies are recognizing the importance of stores. “One of the things we’re seeing is that many online retailers are opening up brick-and-mortar. They’re looking now to establish what is a significant brick-and-mortar presence.”

GETTING SMARTER AFTER THE LOCKDOWN

However, since the pandemic, retailers have had to learn, or relearn, important lessons about how to operate stores. One is a concentration on experience.

“Service has to be very good, and that means the salesperson has to be knowledgeable,” says Werner. “You walk into a Sleep Number store, those are very well-trained people, and if they can get you into the store, they’re going to do a very good presentation, probably have a high conversion rate, and do a lot [more] up-sale than you would otherwise.”

Werner also says they have products in stores that aren’t available online. His company has a line available only in physical locations. “We’ve made those mattresses bigger, better … at a good price.” They’re coming out with a massage mattress. “That’s the kind of thing that will help get people into the store. People will want to come in and check this out. You can’t get that online.”

Batteries Plus has been in business since 1988 and has 720 locations across the country. They’ve made big changes since the pandemic: cleaning up sightlines and adding better signage and digital displays. “They come in with a need, I need this bulb or battery, but they may not know some of the other products and services we have,” says Craig McNair, the company’s chief retail officer. They replace batteries, fix phone screens, cut keys and fobs, and offer all sorts of lighting. Experiences and service are fine, but someone has to let the consumer know.

“So much of what our customers rely on us for is expertise,” McNair adds. “The gap in online shopping, let’s say you went to a competitor and bought a key fob for your car. They may send you the key fob, but if you didn’t order the right one, it wouldn’t work, and it still has to be programmed. We’re going to ensure you get the right product. That expertise becomes the pivot point for why a customer wants to come into the store.”

Make life easy for the consumer. Provide for curbside pickup and easy-to-find orders that started online. “I’ve got 35 years in retail,” McNair says. “It’s about experience, multichannel, to get products and services in the ways you want to get them. We want to make sure you’re getting the most out of their investment.”

Making retail work is also a partnership with property owners. “The reason we’re doing so well and why we rebounded so nicely is that we worked with our tenants individually,” says Wesley Dodd, senior asset manager at Armada Hoffler. Even with deferrals, “they all paid them back, which means they’re doing as well if not better because they have to pay their current rent.” The company did lose some tenants, either ones that gave up or others that the REIT decided wouldn’t ultimately work and which may have already been struggling.

While retailers need to reorganize inside, property owners have to make the exteriors attractive to consumers. “All of our properties are Class A, maybe more seasonal landscaping, more pressure washed more often,” Dodd says. Offer drive-through spaces where possible because it helps certain types of retailers and becomes an attraction for them. “I’ve talked to a couple of national [fast casual] restaurants and they see anywhere from 40% to 60% in sales increased when they include one.”

With retailers and property owners all doing what they need to, brick-and-mortar is beyond an antiquated way of doing business. It’s the skeleton on which a retail business hangs—and thrives.

Source: “Retail’s Bright Future Lies In Brick And Mortar After All“

Up to one in three office buildings in 14 major North American markets could be a candidate for conversion to residential use, according to a study by Avison Young.

The company analyzed 26,000 office buildings, and concluded as many as 8,996 could meet the criteria for conversion in 10 U.S. and four Canadian markets. “We must reimagine how we want to live, work and play. Adaptive reuse is one of the key components of how we do that as a community,” the company stated.

Using proprietary and third-party analytics, the firm identified two “anchoring criteria” for suitable candidates: buildings erected before 1990 and those with floorplates of less than 15,000 square feet.

With tenants increasingly seeking out high quality buildings with many amenities, owners are confronting increasing vacancy in Class B and C buildings, the company noted. “This presents an opportunity for owners of older buildings to rethink their asset strategy and explore options, whether that is to stay as is, renovate/upgrade, innovate (repurpose/adaptive reuse), or redevelop altogether,” it stated.

At the same time, the study says owners need to pay careful attention to the basics beyond age and floor plate. That includes specific building feasibility, costs, location, and surrounding amenities.

But these are not the only obstacles to consider, as the New York Times recently reported as well as GlobeSt.com. In each case, the newspaper pointed out, owners and developers “must solve for local rules that say what counts as a bedroom, for structural columns and elevator shafts that shape where walls go, for construction costs and land prices that affect rent rolls. And they must solve, above all, for access in every unit to fresh air and sunlight.”

For today’s skyscrapers, that’s the rub. “The issue isn’t the tower’s height, but its dark depths,” the New York Times said.

Older buildings constructed before World War II have the operable windows required in housing, unlike modern climate-controlled offices. And in some cases, as current tenants chase more bells and whistles, “the value of these buildings as offices has fallen low enough that in some locations they might now command higher rents as housing,” the newspaper wrote.

If developers can work out these challenges, the effect could be to help restore the vitality of neighborhoods and downtowns after Covid. “A mix of uses provides much-needed energy and vibrancy,” Avison Young commented.

Source: “One in Three Office Buildings are Ripe for Residential Conversion“

Benchmark data is an important tool in any industry. You can see how your performance compares to others and identify where changing practices might make you more competitive.

The National Apartment Association (NAA), Institute of Real Estate Management (IREM), and Building Owners and Managers Association (BOMA) recently announced that they opened automated benchmark submissions in partnership with Lobby CRE.

“In 2022, the initial partnership with NAA and IREM resulted in an unprecedented 9,600 submissions from real estate operators nationwide,” a press release said.

BOMA is a new addition this year and has more than 50 years of data to contribute, Lobby CRE CEO Anne Hollander tells GlobeSt.com. BOMA has more than 50 years of data to add.

Getting data can be expensive because it frequently sits in the hands of private companies that understandably want to make a profit. Madison Condon, an associate professor at the Boston University School of Law, has written recently, for example, that climate risk data is “limited and expensive to access” and also opaque, making verifying its accuracy or potential biases next to impossible.

“A lot of this data with regard to a benchmark is often siloed inside of a large analytics organization,” says Hollander, further noting that third parties scrape the data and then resell it. “We’ve taken a more holistic approach and made it available.”

Operators who submit their own data get market or submarket data in return for free if they belong to one of the organizations. If not, Hollander says that data is available for fee low enough that property managers on site can likely use it.

“It’s not only the understanding of your performance, but the ability to create a more specific roadmap,” Hollander adds. “What is a budget for a property? How do I protect cash flow? How to I optimize expense? This is game changing for a lot of organizations we work with.”

The Lobby CRE contribution is a system that works with “eight different property management systems that cover about 95% of the market.” The data is anonymized, and Hollander claims it can’t be worked back to individual contributors.

Data security includes “financial-grade encryption processes and tools” and “portfolios with more than 20 properties can utilize Lobby CRE’s VIP submission process with a dedicated Client Success Manager to help ensure all properties are properly submitted,” according to the release.

Source: “It’s CRE Benchmark Season, Here’s Why You Should Care“