GlobeSt.com SPECIAL: Energy Crisis Opens New Niche for Distribution Center Developers

ORLANDO-The national energy crisis, although abated in some sectors, is opening a new niche for facilities developers who hunt for distribution center sites near key surface transportation arteries, owners, brokers and developers tell GlobeSt.com.

In Central Florida, there is little argument in the industry that Orlando International Airport is key to a successful distribution enterprise.

“This particular area of south Orlando is well-located with immediate access to the Florida Turnpike and is in close proximity to other major transportation corridors that transverse through Florida,” David Murphy, an industrial specialist in the Orlando office of CB Richard Ellis Inc., tells GlobeSt.com. “Companies which are utilizing air freight as well as ground transportation can minimize both fuel costs and time by locating in this submarket.”

The broker says large distribution users are willing to pay more per square foot for industrial space in parks with the best access to transportation linkages.

“Although fuel costs have stabilized in recent months, our economy’s dependence upon foreign oil and the subsequent volatility of fuel costs have forced logistics experts to be proactive to minimize the potential effects of future spikes on gasoline prices,” Murphy says. “Because companies are also subscribing to supply side compression in an effort to reduce the amount of time product remains in a warehouse, locating next to major transportation corridors can facilitate more rapid distribution of product.”

George D. Livingston, founder and chairman of Maitland, FL-based Realvest Partners Inc. agrees. He says higher fuel costs, either now or in the near future, will affect distribution systems by increasing the cost of shipping.

“Overall, distributors are taking a closer look at facilities development, seeking locations that are well-served by surface transportation systems,” the developer tells GlobeSt.com.

Like Murphy, Livingston says manufacturers and distributors anxious to lower their shipping costs “opens the door to significant opportunities for astute developers who can locate sites convenient to major transportation routes.”

And Orlando is one area national distributors are pinpointing, he says. A wave of new distribution product near the airport and key surface arteries “could particularly benefit Orlando, which is generally perceived as one of the best-served (distribution) regions in the country.”

CBRE’s Murphy says several national developers are already spotting the new development niche and “have taken land positions to take advantage of the opportunity to reduce transportation costs.”

Besides the airport, the other preferred location in south Orlando is the crossroads of the Florida Turnpike and US 441.

“Duke Realty has been successful in developing in Orlando Central Park South and CalEast recently developed several bulk and flex buildings in one of the remaining tracts in this submarket in Cypress Park,” Murphy says.

Erecting the new wave of distribution centers near the major highway hubs is the key element.

“As companies continue their trend of requiring locations as close to major arteries as possible, these projects are going to dominate over projects located in the periphery without immediate access to major arteries, particularly for large statewide or regional distribution companies,” the broker tells GlobeSt.com.

Cubic feet and not square feet may be the future measuring tool for the size of a distribution center, another new trend, Murphy says.

“As companies improve their material handling systems to accommodate higher clear heights, building owners are going to be more apt to build higher structures to respond to their user’s requirements,” he says.

Industrial developers building state-of-the-art distribution buildings “may add $2 per sf to $5 per sf to go from 24 feet to 30 feet on their clear height, adding ESFR (early suppression fast response automatic sprinklers) fire protection, and adding 140-foot-plus truck courts,” Murphy says.

“To create more competitive product, particularly in a competitive leasing environment, developers are going away from maximizing their site coverage to providing more room for truck courts and on-site storage, which has become an emerging requirement among current industrial users.”

Murphy says he hasn’t seen a trend in Orlando yet of some major distributors consolidating several smaller area distribution sites into one regional mega-sized structure of 500,000 sf-plus.

“However, due to a slowing national economy, we have seen some consolidation of national companies out of local or statewide distribution centers into their regional hubs, such as Atlanta, Memphis or Miami,” Murphy tells GlobeSt.com. “As material-handling systems and logistics systems become more sophisticated, we expect this trend to become more prominent.”