Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
Anyone looking to divine the prospects for the U.S. industrial property sector in 2011 and beyond could do worse than to examine the market known by the acronym DFW.
The Dallas/Fort Worth region—which locals refer to either by its acronym or as the "Metroplex"—embodies the opportunities and risks ahead for the industrial segment as it digs out from the worst downturn in memory. The region is home to 6 million people and growing; Texas has led the nation in net job creation for the past decade. Solid economic fundamentals have kept down foreclosure rates for industrial properties. Dallas/Fort Worth's central location and proximity to Latin markets make it an attractive warehousing and distribution hub to support domestic and North American trade.
Add to that a temperate climate, a muted union presence due to Texas's status as a right-to-work state, and the absence of natural barriers to expansion (like seacoasts), and it is hardly surprising the Metroplex has been a powerful magnet for industrial development. The region currently boasts more than 600 million square feet of industrial space, a figure that doesn't include owner-occupied properties.
According to a quarterly survey by developer Jones Lang LaSalle Inc. (JLL), Dallas/Fort Worth recorded nearly $900 million in industrial transactions through the first nine months of 2010, making it second only to Los Angeles in total transaction volume. DFW's volume through the 2010 period was more than triple what it recorded for all of 2009, the JLL report says.
But for the region's developers, it's not all wine and roses. While transaction velocity has accelerated, there has still been no significant new development for the past 12 to 14 months as developers struggle with overcapacity, falling rents, and a buyer's (or lessee's) market for warehouse and DC space.
Currently, the DFW vacancy rate stands at 12.2 percent, down from 14.5 percent at the bottom of the downturn. In normal times, a 12-percent vacancy rate would be a trigger point for development. However, these times are anything but normal; leery lenders burned by bad loans have virtually shut off the credit spigot, and Dallas has not been spared the impact.
"You don't have the availability of debt that you had in previous cycles, and it will handcuff the current development cycle," says Terry Darrow, who runs JLL's DFW practice. "A lot of underwriters have been stung and they will underwrite tougher than before."
Darrow says that asking rents from local developers have barely budged in the past two years and that current rental rates are in many instances well below what developers projected when they built the facilities several years back. What's more, buyers continue to demand and receive generous concession packages that include free rent for a period of time and very attractive—for them, at least—lease renewal terms, he says.
"The deals that are getting made are very bloody," Darrow says.
For example, Darrow had been marketing a 760,000-square-foot facility in south Dallas at $3.15 per square foot. When he was unable to find a taker at those prices, Darrow dropped the rate and eventually signed a lease with Continental Tire to occupy about 40 percent of the space. He is currently working on a separate deal to lease the remaining space.
Darrow would not disclose the final rate offered to Continental or the rate on the pending deal, but he says both were "significantly below" the developer's original levels. Still, JLL never took the property off the market, he says.
Developers in DFW can take solace in the fact that they're not alone. Especially for so-called spec investments, "there is little—close to zero—debt financing available," says Stephen F. Blau, senior director at Newmark Knight Frank Smith Mack, a Wayne, Pa.-based real estate consultancy. Blau says lenders remain very cautious about the economy's prospects and are loath to finance development where a property's asset value and rental rate have declined so much that the cash flow projections don't justify the cost of construction.
"My hunch is that development will continue to be constrained until there is a more robust national recovery," says Blau.
Another issue facing the market is that trends in commercial real estate—which includes industrial properties—usually lag behind residential sector trends by one to two years. As a result, Blau forecasts that trillions of dollars in potentially distressed industrial mortgages—many of which were bundled into the kind of mortgage-backed securities that became the bane of the residential market's existence—will need to be worked through by debt restructuring, foreclosure, or other methods.
Darrow is optimistic the DFW property market has found a bottom. Due to falling vacancies and little new supply, rental rates have begun to stabilize, he says. Rents are starting to show marginal improvement, and landlords are more reluctant to offer concessions to lure or keep tenants, he adds.
Darrow says that while 2011 will be a "firming year" for DFW industrial property, he doesn't expect the pendulum to swing the sellers' way until the very end of 2011 or the start of 2012. He advises companies looking to make a deal in the market to act sooner rather than later.
"If you are ever going to consider a move, now is the time," he says.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The U.S. manufacturing sector has become an engine of new job creation over the past four years, thanks to a combination of federal incentives and mega-trends like nearshoring and the clean energy boom, according to the industrial real estate firm Savills.
While those manufacturing announcements have softened slightly from their 2022 high point, they remain historically elevated. And the sector’s growth outlook remains strong, regardless of the results of the November U.S. presidential election, the company said in its September “Savills Manufacturing Report.”
From 2021 to 2024, over 995,000 new U.S. manufacturing jobs were announced, with two thirds in advanced sectors like electric vehicles (EVs) and batteries, semiconductors, clean energy, and biomanufacturing. After peaking at 350,000 news jobs in 2022, the growth pace has slowed, with 2024 expected to see just over half that number.
But the ingredients are in place to sustain the hot temperature of American manufacturing expansion in 2025 and beyond, the company said. According to Savills, that’s because the U.S. manufacturing revival is fueled by $910 billion in federal incentives—including the Inflation Reduction Act, CHIPS and Science Act, and Infrastructure Investment and Jobs Act—much of which has not yet been spent. Domestic production is also expected to be boosted by new tariffs, including a planned rise in semiconductor tariffs to 50% in 2025 and an increase in tariffs on Chinese EVs from 25% to 100%.
Certain geographical regions will see greater manufacturing growth than others, since just eight states account for 47% of new manufacturing jobs and over 6.3 billion square feet of industrial space, with 197 million more square feet under development. They are: Arizona, Georgia, Michigan, Ohio, North Carolina, South Carolina, Texas, and Tennessee.
Across the border, Mexico’s manufacturing sector has also seen “revolutionary” growth driven by nearshoring strategies targeting U.S. markets and offering lower-cost labor, with a workforce that is now even cheaper than in China. Over the past four years, that country has launched 27 new plants, each creating over 500 jobs. Unlike the U.S. focus on tech manufacturing, Mexico focuses on traditional sectors such as automative parts, appliances, and consumer goods.
Looking at the future, the U.S. manufacturing sector’s growth outlook remains strong, regardless of the results of November’s presidential election, Savills said. That’s because both candidates favor protectionist trade policies, and since significant change to federal incentives would require a single party to control both the legislative and executive branches. Rather than relying on changes in political leadership, future growth of U.S. manufacturing now hinges on finding affordable, reliable power amid increasing competition between manufacturing sites and data centers, Savills said.
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.