Exploring The Future Of Industrial

If there has been any silver lining for commercial real estate during this pandemic, it has been the industrial sector.

While property values continue to slip for hospitality, retail and office, the demand for industrial space has soared. Research from CBRE predicts that supply chain disruptions from the coronavirus will spur demand for 400M to 500M SF of industrial space in the near future. 

Texas in particular has seen demand for industrial space. Dallas Fort-Worth ranks first in the country for both industrial demand and new supply. The pandemic has done little to slow that growth. 

“E-commerce has been the primary driving force behind industrial demand, and the coronavirus has only accelerated that,” said Jake Donaldson, managing partner at Method Architecture, a Texas-based architecture firm. “To keep up with the pace of demand and the evolving needs of industrial tenants, developers will need to lean harder on strategic architecture, engineering and construction partners who embrace technology.” 

Bisnow recently spoke with Donaldson to get his take on the future of industrial in Texas and beyond, including where he sees demand heading, how developers will be able to keep up with consumer needs, and why he believes technology is the key to making tomorrow’s industrial assets safer and more efficient.  

Bisnow: What do you think developers will need to do to meet the increased industrial demand? 

Donaldson: With recent events, the focus on bringing manufacturing back to the U.S. for critical industries like pharmaceuticals will have a major ripple effect, raising the already high demand for industrial space over the next three to five years.

This is one of the reasons why I believe the industry will need to work harder to embrace architecture, engineering and construction  partners and new technology. The construction industry overall continues to lag behind other industries in its use of digital tools and technology. Now that the demand for new warehouse space is so high, we have the impetus to make that change. 

Also, while demand may be high, developers should still continue to monitor absorption rates, local market and industry sector trends and larger economic indicators to try and avoid the boom-and-bust cycles that have traditionally plagued the CRE industry.   

Bisnow: Where do you see the future of industrial heading? Do you think this current demand will last? 

Donaldson: E-commerce, including food and beverage cold storage, will continue to drive industrial demand for the foreseeable future. Physical retail will shrink as that sector focuses more on experiences and leans more heavily on distribution warehouses for product storage and delivery.

Along with that, increased domestic manufacturing will lead to a demand for higher-end industrial space with more climate control, electrical service and customization options for tenant improvements.

Bisnow: Let’s talk about Texas, specifically. Which Texas industrial markets are the hottest right now? What do you think will happen with Texas industrial in the next few years?  

Donaldson: We’re seeing the most activity in the DFW market right now, spurred by continued population growth and corporate relocations from less business-friendly states. 

Houston’s declining energy market will take some time to rebound, so that’s going to leave a mark, but there are some potentially overlooked bright spots that will have a positive impact on Houston industrial demand, including food and beverage, cold storage and spaceport development. The city’s investment in innovation hubs is a good sign, as are maker spaces and the continued growth of the Texas Medical Center, which needs industrial space to support things like off-site laundry, food service and storage.

Also, if more California-based companies like Tesla consider relocation to the Lone Star State, I think it will be a win for all Texas markets.

Bisnow: What new technologies or trends do you think will begin to pop up in industrial developments? 

Donaldson: While demand for industrial will continue, technology advancements like AI, robotics, conveyors, automation, drones and self-driving vehicles will make these spaces more efficient. To implement these, developers will need to make changes to the standard “warehouse box” with thicker slabs, better climate control, more electrical service, changes to loading court configurations and consideration of a vertical delivery model.  

Also, the vast majority of industrial projects have avoided LEED and wellness trends that have been embraced by office developments, but I think that’s coming to an end. In a post-coronavirus world, tenants are going to be much more concerned about how to keep their workplaces clean and healthy to avoid operational disruption, protect their employees and minimize liability. Industrial developers will have to respond accordingly. 

This feature was produced in collaboration between the Bisnow Branded Content Studio and Method Architecture. Bisnow news staff was not involved in the production of this content.