Site Selection magazine
twitter linkedIn facebook email email
TRANSLATE: 
IAMC INSIDER
From Site Selection magazine, May 2017
SHARE THIS ON SOCIAL MEDIA

The Future Is Now

Russell Burton
Russell Burton
IAMC Chair

Back in November, in my first column as IAMC chair, I noted that agility is key to success, especially in an ever-changing business climate. But what precisely are those changes, and how do they challenge you to stay true to your corporate mission, and develop real estate strategies that reflect the overall corporate strategy? In short, how do we remain relevant? 

We exist in a time of amazing industry change, and some of these changes are putting demands on your business that are more varied than any we have ever seen. 

These changes can be divided into two categories, traditional and non-traditional. The first is fundamental to the nature of commercial real estate and whether welcome or not, is unsurprising and actionable. For instance, we’ve all seen interest rates rise and fall, and the current incremental rise in rates is only to be expected. The same goes for the economic cycle. The growth cycle we’ve been in is getting long in the tooth, and we’re hearing a growing chorus predicting a slowdown. Again, not necessarily welcome, but not really a surprise. 

Even the major changes that are coming at the industry from FASB and IASB, while dramatic in their implications, give agile practitioners ample time to adjust and prepare. We’ve all dealt with regulatory shifts in our history. So again, for companies that research and plan, there is little here that should be troubling. 

But then there are the non-traditional changes taking place for which there are no precedents. I don’t think it’s overstating the case to say these changes will redefine not only how you work (as do the updates to FASB/IASB standards), but indeed the very nature of the work that you are doing. 

For instance, consumers have become increasingly mobile, able to buy anything from cars to sporting equipment to groceries via their smart phones and expect delivery not only within days, but often within hours. This clearly presents major challenges for retailers certainly, but also for the manufacturing and distribution networks that complete their supply chains. 

Would you ever have imagined that there would be such solutions to those challenges as 3D printing, small-scale manufacturing, autonomous vehicles and warehouse locations tucked within urban city centers? Labor requirements are changing as well, with robotics an ever-more vital part of the supply chain and AI encroaching into repetitive office work, thereby changing real estate requirements.

It is our responsibility to respond to these changes, and the responsibility of IAMC to help you navigate these new, muddy waters. 

Economic cycles will roll. Interest rates will rise and (eventually) fall. But there’s a new day of change coming at the hands of technology. And those who do not accept it will be left behind. Whether we like it or not, the future is now. We as an industry need to be agile enough to embrace it.

Russell Burton
IAMC Chair

World Disruptive Events — Impacts on Corporate Real Estate Strategy and Execution

This article is based on a program at the New Orleans Professional Forum moderated by Kevin Dollhopf, Vice President of Worldwide Real Estate, Hanesbrands Inc., and featuring presenters Colleen Caravati, Director of Corporate Real Estate, Corning Inc.; Jason Hickey, President, Hickey & Associates; and Andrew Urban, Associate Real Estate Manager, EMEA & AsiaPac, Zimmer Biomet Inc.

Key Takeaways
Volatility is the new normal for corporate real estate executives.
Recent world events have increased scrutiny of real estate transactions and supply chain resilience. CRE professionals who understand the risks associated with their portfolio are in a strong position to act as business partners. 

Kevin Dollhopf
Kevin Dollhopf

Political and social unrest can take many forms, including port strikes and labor unrest, coups and uprisings like the Arab Spring Movement, immigration and migrants, the U.S. presidential election, and state legislative issues. The panelists discussed how they are dealing with this type of volatility: 

  • When the impact can’t be quantified, wait and see. 
  • Political and social unrest is affecting site selection in Europe and in less developed markets. Jason Hickey reports that more projects want to circumvent the UK in the wake of the Brexit vote.
  • Labor strikes are causing some firms to re-examine their real estate strategy. Hanesbrands has traditionally followed a strategy of fewer, bigger facilities. However, the Los Angeles port strike increased company risks since all Asian supplies were coming into one West Coast distribution center. Hanesbrands is now re-evaluating its real estate strategy. 
  • Thailand is experiencing volatility due to political coups and an unstable government. When Hanesbrands closed a facility in Thailand, it had to sell at half the value due to the lack of foreign direct investment there. Office costs, however, have increased 10 percent to 15 percent per year because no one is building new space. 
“I strongly recommend having a partner outside your real estate provider that can objectively advise you on situations that arise in different countries.”
— Colleen Caravati, Corning Inc.

In the face of terrorist attacks and security threats, companies must balance risks with business requirements. Colleen Caravati and Kevin Dollhopf gave examples: 

  • Corning was planning to move a plant in Turkey that was located on an earthquake fault. When terrorist attacks occurred, the deal was put on hold. The company decided ultimately to move forward, since Corning would lose business in the Middle East without a presence in the region. 
  • As Hanesbrands explored opening a Barcelona office, the team found a potential location in the center of the city’s tourist area. But when the company realized the risk of a terrorist attack there was high, they selected a different area to diversify risk for employees. 

Many companies are waiting for clarity on trade issues before making real estate decisions. Global free trade is a concern for many companies, with TPP, Brexit, and even NAFTA in play. Some companies, including Corning and Hanesbrands, have exited China with plans to move operations to Mexico. However, with increased uncertainty around NAFTA, they are now taking a wait-and-see approach.

Examples of use of analytics and asking new questions were shared by Kevin Dollhopf. When events arise, classify them using an analytical framework. Disruptive events fall into one of four categories: 

  1. Headline grabbing but irrelevant. There is no change to supply or demand in the market. 
  2. Visible and relevant on a smaller scale. It affects the supply chain dynamics in one region. 
  3. Visible and significant on a larger scale. These events result in permanent changes to infrastructure, processes and markets.
  4. Incremental, but very impactful.

Four questions help determine whether corporate real estate should be concerned about an event: 

  1. Do we need to worry about things that aren’t local? 
  2. Is there more than one jurisdiction or government involved? 
  3. What are the links to supply and demand? 
  4. Is there lasting economic or social change that will result from an event? 

Be prepared to answer new questions from senior management. Examples include: 

  • How do we analyze the impact of events on the real estate strategy? 
  • What is the terrorist attack profile of a location? 

Be prepared to ask new questions of senior management. For instance: 

  • Is an event opportunistic or evidence of a longer-term issue for the business? 
  • Will the event impact the company’s strategy?


Transportation & Logistics Outlook: Think 3D

This article is based on a Cleveland Professional Forum program featuring as speaker K.C. Conway, MAI, CRE, Senior VP – Credit Risk Manager & Chief Valuation Officer, SunTrust. The session was sponsored by City of Ontario, California.

Overview
Massive changes are taking place with the potential to disrupt the supply chain of virtually every company doing business in the United States. Driven by changes in transportation and logistics, America’s supply chain is rapidly shifting from being West Coast-centric to becoming more East Coast-centric, evidenced by massive growth in ports in Norfolk and Savannah. In addition to the geographic shift, there is also a shift to more intermodal transport and creation of massive inland ports. 
On the horizon is the disruptive potential of 3D printing, where businesses and individuals can quickly make customized parts and products of all types, from cosmetics to homes and cars, as well as skin, bones, and pizza.

Key Takeaways
Volatility is the new normal for corporate real estate executives.
Several excellent information sources provide valuable insights on the transportation industry.

KC Conway
K.C. Conway

Rail Time Indicators: Rail Time Indicators provides weekly, monthly, and annual information on freight rail traffic. This data is published by AAR (at aar.org), the Association of American Railroads. This data is valuable because demand for rail service is a useful gauge of broader economic activity for the economy as a whole and for specific industries. 

IANA: The Intermodal Association of North America provides data on the transfer of products involving multiple modes of transportation — truck, railroad, or ocean carrier. There are currently more than 1,080 intermodal facilities in the United States, with the majority of them on the East Coast and Upper Midwest. It is essential that every company’s supply chain managers understand intermodal transportation and take full advantage of it. 

OSCAR: The Ocean Shipping Container Availability Report has been produced by the USDA for about two years. This report provides detailed information on how many containers are coming into a port, how many are leaving, how many are full and empty, and exactly where specific containers are. 

A shift in how and where freight is shipped is underway is reshaping supply chains. America historically had a West Coast-centric supply chain, but this is shifting toward the East Coast. While five of America’s 10 largest ports remain on the West Coast, a fundamental remaking of the American supply chain is taking place. Key factors include: 

  • Expansion of the Panama Canal, which is a factor behind seaport expansions and harbor deepenings. 
  • A desire for greater speed. There is a greater desire to move goods more quickly and efficiently from factories to ports and from ports to inland consumers and businesses. 
  • Location of the population. Currently, 70 percent of the American population lives east of the Mississippi River. With so much of the population in the East, and a greater desire for speed, it no longer makes sense for supply chains to be West Coast-centric. 
  • Creation of massive inland ports. Huge inland facilities have been built in places such as Joliet, Illinois; Winterhaven, Florida; Greenville, South Carolina; and Kansas City. 

In 2007 the West Coast ports had a 61 percent market share, which has fallen to 55 percent in a relatively short period. Shipments in ports in Norfolk, Virginia; Charleston, South Carolina; Savannah, Georgia; and even Cleveland, Ohio, are up significantly, while Seattle is off almost 25 percent. 

The growth of 3D printing — a manufacturing technology that allows consumers and businesses to “print” customized products on demand — will change the economy and the usage of real estate. It is not a fad, and will revolutionize how companies manufacture, warehouse and distribute. 

Three-D printing is already in use in many ways, including in the creation of custom orthotics, skin, cosmetics, housing materials, and automotive parts. All of the parts for an entire car can be printed within 24 hours. GE is investing $50 million in a 3D-printing facility to make parts for jet engines, and NASA has used 3D printing in space. 

Currently there are 3D printers available for consumers at places such as Sam’s Club; there are intermedi¬ate 3D printers; and professional-grade 3D printers. The ability to print parts and products will have a huge ripple effect. Long term, retailers such as CVS or Home Depot may no longer be necessary, as people and businesses may be able to print their own products. In commercial real estate, 3D printing may fundamentally change the construction process, as parts can be printed as needed. Already, the world’s first 3D-printed apartment building has been created in China, while Apis Cor in March completed a 3D-printed house at a site in Russia.



comments powered by Disqus

Site Selection online is a worldwide service of Conway, Inc. ©1983-2017, all rights reserved.
Data is from many sources and not warranted to be accurate or current.
For contact information visit our staff page or send general information queries to Cathie Wendt.
Send direct technical inquiries or comments to webmaster bounce@conway.com. View our Privacy Policy.
HOME | SITE SELECTION MAGAZINE ARCHIVES | SUBSCRIBE