The New Warehousing

In a simple phrase, Thomas Moe sums up the implications of increased offshore manufacturing on the national commercial and industrial real estate market: “More stuff coming in from China means that more stuff needs to be stored here, not made.”

In other words, suggests Moe, president of Moe Acquisitions LLC, a Minneapolis real estate company specializing in Minnesota industrial and office properties, one broad market trend would be less factory space, more warehouse space.

But instead of just warehouses, think “distribution centers.” While manufacturing has been moving overseas, the retailing industry has seen a wild proliferation of national chain outlets and big-box stores. “A lot of major retailers are really distribution companies,” says Ted Carlson, vice president of industrial leasing for Welsh Companies, a brokerage firm in Minneapolis. For the likes of Wal-Mart, Walgreens, Target, or Best Buy, Carlson says, “one of the biggest challenges is to move products around efficiently.” That challenge is still present even when retailers outsource their distribution operations to other vendors, as some do.

Because the need isn’t just to store merchandise and materials but also to move it efficiently, the answer is not simply to build more warehouses, say experts in commercial real estate. The most notable national phenomenon they see is a trend toward the consolidation of storage space into fewer, larger bulk distribution centers. For a number of reasons, mega-warehouses generally are built outside major cities rather than within them.

Because of its northern location, Minnesota is on the periphery of this consolidation, not at its center. But the forces in play can be seen here, as elsewhere, determining the size and placement of new facilities as well as the uses to which older ones are put.

What forces? Local experts point to geography, transportation logistics, new warehouse technology, incentives offered by state and local governments, and more.