While COVID-19 has impacted all sectors of commercial real estate to varying degrees, industrial has remained strong and solid nationwide throughout the crisis.
Buoyed by e-commerce, industrial product has allowed large swaths of the economy to remain afloat during the pandemic. In addition to serving the needs of millions of consumers who are homebound to curb the spread of the virus, online shopping enabled by these facilities has dramatically increased retailers’ revenues over the last several months.
While the industrial sector keeps trucking amid pandemic-induced economic shutdowns, many commercial real estate stakeholders are wondering about the employment outlook for industrial real estate firms.
The discussion below—featuring The Koll Co. Managing Principal Gerald Yahr, Unire Real Estate Group President Griffin Cogorno, CenterPoint Properties Senior Vice President & Regional Manager Bob Andrews, CT Realty Managing Partner Dominic Petrucci, and myself—covers the greatest hiring needs of our companies, our outlook for the sector, and how future dynamics might affect hiring in this arena.
What is the greatest hiring need for industrial real estate companies at the moment?
Yahr: There continues to be a lot of big-box industrial development nationally, and, as a result, we’re seeing increased demand for experienced development personnel who can manage the design and development of big-box industrial properties in locations throughout the U.S.
Cogorno: We have experienced a hiring demand for qualified property managers and accountants. This has been an area of strategic focus for us for the past three years as we have continued to grow our portfolio in excess of 50 million. We’ve also noted an increase in hiring among our vendors: HVAC, maintenance, and other providers who are straining their ability to service all of their clients’ assets. The increase in throughput on the warehouses equates to an increase in maintenance, repair and replacement, as warehouses are working overtime to keep up with the demands of the new normal.
Andrews: There is always a need for experienced construction managers and property managers who can solve problems and provide excellent customer service, even more so during this pandemic. On the development side, solid construction project management and entitlement professionals are always valuable.
Petrucci: Right now, the industrial sector benefits from many “rockstar” young people and senior executives on the development, entitlement and construction management sides of our business. But there is a void in the middle tier of late-30- to mid-40-year-olds. In the late ’90s to early 2000s, a lot of potential CRE talent got pulled into the tech world, resulting in current hiring needs in the middle to upper tier, which comprises senior VPs and senior managers.
Myself: The big-box development and construction space continue to be super active from a hiring perspective. As a recruitment firm, we have to be more creative now in finding “out-of-the-box sure-thing” candidates for industrial development roles as many candidates at this level are locked into significant incentive compensation packages. Through our relationships, we know the apples-to-apples candidate pool. We also know how to find other candidates with transferable skill sets.
What is your outlook for the industrial real estate market? What growth and challenges do you expect to see?
Cogorno: Industrial has continued to remain the darling in CRE with almost zero cap rate expansion due to the pandemic. Owners and tenants have actually increased their holdings and square footage, focusing their footprint in well-located sub-markets closer to their clients and the ports and rail depots. The digitization of logistics centers will only enable the industrial sector to grow at a faster pace. Clients are extremely bullish on this sector as rent continues to trend upwards and more goods become stored and shipped from a warehouse versus a retail center. I see some pushback from the smaller logistics providers/tenants as their rents rise faster than their margins. Smaller providers cannot continue to absorb the rental increases. This compression will eventually hit a tipping point, which will drive small occupiers out of business.
Andrews: The outlook is very positive. After a short pause in April, demand increased significantly in the West Coast markets due to e-commerce’s rapid surge and the need for occupiers to increase capacity for safety stock. Finding infill opportunities to develop new or rehab existing properties to serve last-mile and logistics users and getting support from municipalities continues to be a challenge.
Yahr: The industrial market has performed quite well despite COVID-19, and we believe the long-term outlook is strong for the sector. Much of the demand is driven by e-commerce, and we will continue to see a lot of development to meet that demand. Although the pandemic has caused vacancy rates to increase slightly, part of that rise is due to this increased development, but we are still at near-record low vacancy rates. While many developers anticipated a very short lease-up window, COVID-19 may have slowed some decision-making; however, the overall demand seems to remain strong, and we should see absorption increase and vacancy rates tighten up as we move through the pandemic.
Petrucci: CT Realty is in nine markets nationally and in eight of the tier-one logistics markets. While our acquisitions and developments have been all over the U.S., we think Dallas will be one of the four or five most active markets in the country going forward. It benefits from being in a central location and being business friendly, and Texas has no state income tax. Nationally, industrial real estate has a unique place within the broader real estate markets now.
It has benefited directly from COVID-19 and the economic devastation since the point of sale has shifted to industrial buildings instead of brick-and-mortar retail. Although we expect growth to continue in all major markets, there will be challenges. Lenders are more tepid now than before COVID-19, so that will mitigate the potential for overbuilding. The other challenge, especially up and down the West Coast, is regulatory hurdles to get properties entitled for industrial.
Myself: Industrial is poised to continue its growth, and we expect to see hiring across this sector remain strong in the months ahead. Firms that have been willing to lay the groundwork for hiring during this year’s “down time” are now able to hire top talent, take advantage of the many growth opportunities within the industrial sector, and set up powerful teams that position them for future success.
How will future dynamics in this sector affect hiring?
Andrews: Future industrial real estate positions will require problem-solving, financial and operating expertise, and strong customer service skills. CRE is a people business, and this is not going to change.
Yahr: Economic insecurity is creating some hiring uncertainty. That said, we are seeing a lot of companies that paused during the early stages of the pandemic starting to reexamine their workflow and beginning to search for quality industrial property managers, accountants and development personnel.
Cogorno: Technology will be a major dynamic moving forward. As more warehouses invest in automated material and handling systems, some warehouses will need fewer employees but will need higher-educated employees to manage the automation. I am very interested to see how companies like Amazon manage the onboarding of hundreds of thousands of employees per year and millions of square feet of logistics centers. The world is definitely changing how we ship and deliver goods.
Petrucci: There’s really no evidence to support a slowdown in the next five to seven years. Talentwise, companies need to be looking at succession planning: bringing up, training up and coaching people inside the organization.
Myself: The future for industrial real estate looks bright. Our clients in this sector are bullish because they have seen how reliant the economy is on the supply chain in both good and bad times. With e-commerce as a driver, there’s almost no stopping industrial real estate firms as we look over the horizon.
Kent Elliott is a principal at RETS Associates, one of the nation’s leading real estate executive search firms, specializing in connecting today’s companies with valuable talent to deliver long-term profitability. With a proprietary database of more than 50,000 experienced candidates, RETS helps industry leaders find powerful executive positions, while also helping global, national and regional real estate companies strategically recruit and hire both permanent and interim employees. For more information, contact [email protected].