Thought Leadership | AREA Real Estate Advisors

Five Reasons Large Distribution Centers are Choosing Kansas City

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By Brent Peterson – Vice President, Director of Industrial Brokerage

Kansas City has always been a center for commerce and in recent years, has established itself as a leading distribution center within the United States.

According to the Kansas City Area Development Council, “Kansas City is experiencing one of the largest industrial booms in its history and is a center of choice for warehousing, manufacturing, and distribution.  Business has prospered in large part due to the region’s abundant multi-modal transportation network.”  In 2017, the metro saw growth in distribution facilities from 100,000 to 1.2 million square feet, which included eCommerce companies like Amazon, HyVee Aisles, Dollar Tree, Spectrum Brands, and Horizon Global.

So, what makes Kansas City so attractive to large distribution centers?

  1. Rail. Currently, the metro receives more tonnage by rail than any other city in the United States in large part thanks to Kansas City’s efficient rail lines that come into the city and leave with little incumbrances.  The multiple rail yards are the perfect spots for finished and raw goods, including grain, vehicles, and coal.
  2. Location.  Companies can reach 90% of the continental U.S. and nearly 99% of their customers within a two day drive time.  Its central location makes it a natural crossroads for transcontinental rail, interstate, and waterway.
  3. Interstate. Distribution Centers can piggyback on the large interstate system running all directions, including I-70, I-35, I-29, the 435 loop, and I-49. This allows companies to move goods more efficiently without congestion.
  4. Labor Cost.  The cost to operate in the Kansas City metro is significantly less than some other major metros such as Chicago, Dallas or Los Angeles.
  5. Community. Kansas City is mainly comprised of the non-transient workforce who come to the region and choose to stay in the area.  A low cost of living, big-city amenities and small-town feel, along with jobs and schools all contribute to why potential employees stay.

Driver Shortages in the U.S. Trucking Industry

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By Brent Peterson – Vice President, Director of Industrial Brokerage

According to a recent USA Today article, “Trucking companies nationwide are about 60,000 drivers short; a gap that is expected to grow in the coming years and could threaten U.S. supply chains.”

The American Trucking Association warns driver shortages could reach six-figures by 2024.  As over the road, truckers continue to age and head into retirement, the question becomes who will continue to fill the need and what does the future of this vital industry look like?

There is a constant need to keep recruiting drivers given the shortage of drivers currently facing the truck industry.  While hiring, training and retaining drivers over the long-term is crucial and has its challenges, it all begins with the recruitment of the right candidates and giving them a reason to stay.  To this end, benefits for truck drivers have become more crucial than ever because all motor carriers are facing the driver shortage.  Above industry-standard benefits, could mean the difference between a fleet of drivers that stick around and one that leaves looking for better perks.

Consider these five benefits that could help the driver retention:

  1. Find ways to attract more drivers through incentives, including becoming their owner-operators, owning their rig and equipment and more workforce training.
  2. Make improvements in efficiency and comfort in big rig trucks.  Truck drivers spend a considerable amount of time in these vehicles. We need to ensure they are safe and comfortable.
  3. Consider having more distribution centers, smaller in size in more cities so truck drivers have fewer nights away from home, making their personal lives and lifestyle less disruptive.
  4. Have more teams of two people driving together to relieve each other and make the job less lonely. Isolation is a huge reason for the turnover in the trucking industry.  Setting up a team environment could ease the burden of individual drivers.
  5. Start paying more money with more competitive retirement packages and health benefits.

6 Tips on Making the Tech Firm Leasing Process More Efficient

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By Tim Schaffer – President, Director of Brokerage Services

The arcane world of real estate leasing can be frustrating for tech firms focused on efficiency of process. Here are 6 tips on making the process more efficient with a better outcome.

1. Surety of the lease

A rapidly growing tech firm’s financials look very different than that of a more traditional business your landlord is used to working with. From the outset and before a lease is negotiated, communicate the company’s business plan and understand upfront what kind of surety is required by the landlord.

2. Term of lease

Companies that are growing quickly don’t know where they’ll be in five years (much less 10), so choosing a landlord with multiple buildings or a building large enough to grow incrementally over time is a good strategy. Negotiate rights of first refusal that correspond to your projected head counts and rights to sublease, should you grow out of the building or sell the company.

3. Look for plug and play opportunities

Plug and Play is move-in ready space with furniture already in place. These options are desirable because they reduce the need for capital for furniture and infrastructure. Many times, these options are a sublease with a short-term commitments, a bonus for fast-growing companies

4. Test your Assumptions

Bring key employees into the process with different perspectives and survey your employees to understand what is important to your team. Small things to you can be big things to your team.

5. Be aware of how your culture will change in a new space

It’s not unusual for tech companies to have a thriving culture in cramped quarters then lose energy unexpectedly in a larger environment. Having the right designer that understands workspace science, best practices and has experience with like-kind tech firms is essential to maintaining and enhancing culture.

6. Not every building is right for growth

Not every space is right for every company, even if you love the building and the location. Understanding your headcount and how many people you will be hiring over the initial term of your lease is critical to vetting out the right building for the company’s future. You may be able to put more seats in less space in one building over another, so look at rent cost per person, not just rent per square foot.

From Blighted Big Box to Amazon Distribution Center? Five Reasons Why Retail Space Is Turning to Industrial Usage

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By Brent Peterson – Vice President, Director of Industrial Brokerage

In the past three years, developers have started 24 projects across the United States to convert former retail space into industrial warehousing, according to a recent analysis by CBRE.

The result will be the conversion of 7.9 million square feet of retail space into approximately 10.9 million square feet of new industrial space. The second figure is higher because often a developer will tear down some or all of the existing structures and build a more significant building on that dirt.

The trend of retail to warehouse shows no sign of slowing down, and makes sense for a handful of reasons, here are a few:

  1. More retail sales are happening on the internet. This means that retailers and third-party logistics providers like Amazon, UPS, and FedEx are finding they need more space to facilitate online orders. With that, more brick and mortar store closures are taking place, and as they say, timing is everything.
  2. The industry has opened itself up to the change. These types of conversions have gone from once unthinkable to highly attractive. In Kansas City, we have seen shuttered Big Box stores turn into everything from athletic facilities to distribution centers.
  3. Big Box retail space is far more available than distribution space. While the overall retail market is healthy, several well-known individual retailers have closed hundreds of stores. Those big boxes can be challenging to backfill with new tenants. In contrast, the industrial market, which includes warehouses as well as manufacturing space, is at a historic low.
  4. The location is naturally ideal. Old retail space is often found along major streets or highways, providing easy truck access. While many stores are left because their surrounding neighborhoods deteriorated, those locations are within an ideal distance of large populations for same-day or next-day delivery, which make them perfect last-mile distribution centers.
  5. Structurally, it makes sense.  Standalone Big Box stores and malls can be a great fit for e-commerce distribution because they offer wide-open spaces; dock-high doors for loading and unloading; and reasonable ingress and egress for trucks.

Kansas City will continue to see this trend continue, in large part due to its existing infrastructure. From a logistics standpoint, the metro has a multitude of interstate miles coupled with reasonable traffic patterns for a city of our population size. We can expect to see blighted big box stores put to use in new ways across the city.

If you are interested in learning more or hearing about former big-box real estate options that could work for industrial purposes, I’d love to talk to you about it.

How Retailers Are Using Tech to Increase Brick & Mortar Sales

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By Matt Vaupell – Executive Vice President, Director of Brokerage Services

The evolution of Amazon and its online effect on shopping has made retailers and restaurants scramble to explore options to reinvent how they can do business.

As more and more people are opting to shop online, brick and mortar establishments have to find ways to supplement what they do for their customers and to make the sales experience more streamlined and enjoyable for the end-user. The smart ones are turning to tech to improve efficiency and customer service.

Here are four ways that restaurants and retail are currently utilizing technology to increase their brick and mortar vitality and create a better experience for their customer:

1. Direct to Store Shipping.  Home Depot is doing this as good as anyone in the game. By allowing their customers the convenience of online shopping and product shipping to their store,
they have great convenience partnered with access to their expert staff at pick up which really is the best of both worlds.

2. Mobile Food Delivery. Uber Eats, GrubHub, and Doordash are changing the way we eat, making it easier than ever to enjoy our favorite foods from the comfort of our own homes. The food delivery market is changing at an accelerated pace, and for the moment there seems to be more upside than down to restaurants allowing their customers to order delivery as it helps to expand their customer base and boost an additional stream of revenue.

3. Line Cutting. No one likes to wait in line. No. One. Chipotle has mastered this concept, but several restaurants do this really well. To enhance the customer experience and compete with delivery, many restaurants allow you to order online and pay online, schedule a pick-up time and come grab your order off a shelf with no line or hassle. It is literally grab and go. As it turns out, this might be an even better option for restaurants than delivery, as early 2019 results show upwards of a 10 percent increase in revenue directly attributable to online and pick up component.

4. Mobile Device Tracking. Many of the apps already on your phone enable the location tracking option (ex. weather, maps, and ride-sharing.) Retail-specific apps can allow the customer to sign up for services that can track their location within the stores. For example, within a six-foot radius, retailers like Walmart and Target know when someone is looking at the makeup section but doesn’t end up purchasing something. They can then do location-targeted advertising to that mobile device, based on the needs and wants of the consumer, ultimately allowing retailers to remind customers what they might need based on their behavior patterns.

The whole idea that brick and mortar retail will become obsolete doesn’t have to become a self-fulfilling prophecy. The way restaurants and retailers can survive is by utilizing technology to streamline efficiencies and bolster the in-store and online customer engagement and service.  The key is to make it so the consumer needs or wants to stop by as opposed to just delivering to their doorstep and technology can help achieve that.