Throw a stone in America’s rustbelt, and you’re as likely as not to hit a tasteful warehouse loft conversion or former factory converted into high-end apartments. Over the past few decades, developers have leaned into the “adaptive reuse” of industrial premises, with at least 32,000 conversion projects completed since 2020.
That trend has breathed new life into many urban areas, turning former factory and warehouse districts into hip new communities. But with U.S. manufacturing now experiencing something of a renaissance, and hundreds of thousands of jobs returning from overseas, it does raise a question: where are we going to put the factories and warehouses, we need to support a new wave of reshoring and homegrown manufacturing?
Nobody’s suggesting we should support reshoring by beating plowshares back into swords and turning hipsters’ lofts back into factories and distribution facilities. But shortages of industrial real estate are potentially a significant bottleneck as we look to drive growth and bring industry and innovation back to America. In fact, we’re already seeing warehouse and distribution center shortages contributing to supply chain issues across the country, including vacancy rates below 2% in Los Angeles, Boston, New Jersey, and South Carolina. “Space in our markets is effectively sold out,” said Thomas Olinger, CFO of logistics real-estate firm Prologis, in late 2021.
Like any sector, the industrial real estate space is driven by supply and demand, and since 2021 we’ve seen a boom in industrial real estate construction. This year, in fact, the total stock of U.S. industrial premises is set to grow by 4% — the fastest rate in over three decades.
That’s great news, of course. But with demand still high, the surge in industrial construction brings new challenges — not least the fact that we’re now running out of suitable places to build industrial facilities. There’s still plenty of undeveloped land left, of course, but with energy prices high and inflation prompting both consumers and businesses to seek to curb their costs, putting manufacturing and distribution spaces near the communities they serve is more important than ever.
Here are three key areas where construction companies and developers can act to overcome challenges and unlock new opportunities in the booming industrial real estate space:
1. Raise the roof.
Multistory industrial facilities are a great way to pack more into less space. Already widely used in Asia, such projects aren’t yet common in the U.S., but that’s likely to change in coming months and years. Amazon is at the forefront of this trend: its multistory warehouses include freight elevators, ramps for delivery trucks, and networks of conveyor belts and robots to keep products flowing.
Building out innovative new multi-level floorplans and related logistical capabilities will take careful planning from the ground up, but construction companies that prove their abilities in this area will find enormous demand as current trends in reshoring and localized logistics converge.
2. Keep prices low.
No business wants to pay a premium for their industrial facilities, but the painful reality is that multistory industrial facilities typically cost 40% or more to construct than an equivalent-area single-story facility. That will make it vital to manage projects effectively and avoid cost overruns: in the reshoring era, lean construction has never been more important.
Construction businesses will need to demonstrate an ability to manage large teams and keep everyone on the same page — and that will necessarily fuel adoption of integrated digital design and site-management technologies, giving every team-member full visibility into the goals and status of the project.
3. Stay agile.
Above all, construction companies will need to show they can adapt quickly to shifting market conditions, and deliver the support that American businesses need as they rapidly pivot and reshore workers and manufacturing capacity. Today’s manufacturers are far more nimble than they used to be — think robots and semiconductors, not smelting plants — and they need to be able to stand up facilities quickly and repurpose them as needed.
Of course, construction projects aren’t known for their agility. But with the right knowledge infrastructure and support tech behind your team, it’s possible to move quicker, while coordinating operations across multiple teams and worksites to minimize supply chain, logistical snarl-ups, or accidents that lead to delays and work stoppages.
4. Think green.
Companies are hoping for a significant PR boost as they bring business back to the United States, and that’s a whole lot easier if the industrial facilities they build are modern, sustainable, and pleasant to work in. Designers, developers, and construction teams that can deliver energy-efficient premises with integrated smart tech and sustainable materials will be far better placed to succeed.
That’s especially true, of course, for projects located in or near urban areas, where everything from noise and light pollution to aesthetics and curb appeal will play an important role in determining how industrial construction projects are received.
5. Don’t sleep on reshoring.
For today’s construction and design pros, the takeaway is clear: the reshoring trend will only fuel demand for industrial real estate in coming months, but businesses will still be picky about which companies they work with and what kind of real estate they acquire.
To succeed, companies will need to embrace new trends such as multistory industrial construction, and demonstrate the ability to build out even highly complex and innovative projects quickly without going over-budget. With projects increasingly located in densely populated areas, they’ll also need to align their industrial projects with commercial and residential trends, including sustainable building and livable design principles.
Getting all this right won’t be easy and will require a well-organized and technologically advanced approach to both design and worksite management. For companies that step up and show they can pull it off, though, the demand for industrial real estate is high, and the opportunities are almost endless.
