I Spoke this morning with Blaine Kelley, senior vice president focusing on industrial/distribution center real estate at broker CB Richard Ellis. Having decamped from the New Jersey Turnpike recently via Exit 8A and spotted for-rent signs on the front lawn of what seemed like every distribution center I drove by, I can understand how this would not be the greatest moment in this sector of the supply chain. And indeed, such was the basic report from Kelly, but not as bad as one might expect. He’s busy, he says, but mostly with renewals, lease negotiations and cost saving measures rather than new investments or assisting clients to plot the next iteration of their supply chain strategy.
Such grand plans basically do not exist today. Companies are not spreading out their DC network to minimize fuel costs, as some were considering last year as oil surged to $147 per barrel. And they are not retrenching either, closing DCs and opening fewer larger ones. Rather, firms that ship merchandise as part of their business are hunkering down. “I am seeing companies trying to optimize what they have for the short term, meaning the next 1-3 years,” Kelley said. Some domestic food distributors are active, as are many 3PLs, which continue to benefit from the lack of customers’ long term plans, the downside being that many 3PL deals offer customers a 30 or 60 day out clause. “The 3PLs are the ones that are most active, that is, out on the street looking for facilities, but they are just overflowing short term space.
They might be looking at extra space for back to school or holiday season inventory, but by January of next year they will give the space back to the landlord. It is not like they are going into LA and taking 500 square feet for 10 years.”