How Amazon’s Footprint 2.0 Will Redefine Industrial Through 2025 Ben Conwell, Cushman & Wakefield Larry Kosmont, CRE, Kosmont Companies Q&A:bit.ly/naiopq6 Presenters Ben Conwell Larry Kosmont, CRE Sr. Managing Director, Practice Leader President and CEO eCommerce & Electronic Fulfillment Kosmont Companies Cushman & Wakefield Q&A:bit.ly/naiopq6 Amazon Effect Ben Conwell Q&A:bit.ly/naiopq6 e-commerce Leasing Big driver, but are we exaggerating the impact? Q&A:bit.ly/naiopq6 Four Building Types in Two Dimensions Service Level & Urbanization Two factors that will shape successful fulfillment chains over next five years. Q&A:bit.ly/naiopq6 Trends in Fulfilment Center Development Proximity carries the day, functionality is still key, and it’s often about trade-offs. • Culture and brand not only protected but • Transportation infrastructure is critical celebrated • Build to suit vs. existing product • Facilitating expansion of fulfilment capacity to • Lease vs. own bring optimal inventory as close to customer base as feasible • 3PL vs. self-perform • Material Handling solution that works today and • Clear height vs. building depth scales • Environmental stewardship and respect for associates and • Optimize leverage of distribution network vendors • Proximity to UPS, FedEx, DHL, USPS • Labor. Labor. Labor. infrastructure Q&A:bit.ly/naiopq6 The rate of change & innovation is only speeding up. As is the pressure to deliver capacity faster & smarter. And it’s only getting tougher to keep up. Q&A:bit.ly/naiopq6 But AMZN is for sure a tech leader Q&A:bit.ly/naiopq6 Drones Will Never Work – They’ll Get Shot Down Yes, they’re working on self-defense technologies too Q&A:bit.ly/naiopq6 Delivery as Utility? Land, sea, air or underground? Q&A:bit.ly/naiopq6 Now This is Fast Fashion Q&A:bit.ly/naiopq6 Why Didn’t I Think of That? Still another example of who the real innovative thinkers are… Q&A:bit.ly/naiopq6 It’s still Day One • Convenience stores – AmazonGo • Drive-up pick-ups – Amazon Fresh Pick-up • Mall pop-ups • Bookstores • Treasure truck • Drones… Q&A:bit.ly/naiopq6 “They’re not everywhere yet, but give them time.” Q&A:bit.ly/naiopq6 Amazon US Network Expansion This is what growth looks like - especially in last mile 70 60 Annual North America Building Growth by Function 50 FC 40 Sortation Transactions 30 Fresh / Pantry 20 Prime Now / Delivery Station 10 0 Q&A:bit.ly/naiopq6 Not nearly as easy as it may seem…at least for now Q&A:bit.ly/naiopq6 Is Industrial The New Retail? city zoning vs. consumer demand Larry J. Kosmont, CRE Q&A:bit.ly/naiopq6 Outline 1. What do Cities want & need? 2. Changing World of Land Uses – Retail – Industrial 3. Entitlements and Zoning Tools 4. Bright Future, Big Challenges Q&A:bit.ly/naiopq6 City Leaders: The Plumbing of the World is Changing • California shifting to a reduced carbon footprint “green” economy • Tech is changing the way we live: shifting retail & tenant mix, interaction, & connectivity (e.g. driverless cars, robots, big data) • Retail adapting to changing social habits, bricks/clicks blending; new focus is on trips vs sales • Loss of jobs to automation requires commitment to creating jobs • Housing shortage affects all; state wide priority, less local support • Cities need private $$ to create jobs, tax revenue, & housing • Zoning priorities should change but will be a slow process Q&A:bit.ly/naiopq6 Cities Pursue Quality of Life Safety & Community Services (recreation, trash, utilities) priority…but Image and Identity are key factors • Appearance plays role in attracting residents, visitors, investors • Creative economy wants to drive less • “hanging ” in a destination/place (coffee, public spaces, events) Economic Development a priority for most cities • Retail being replaced by “Creating a Place” • Industrial could be part of the “new” retail, if can generate taxes & jobs Development Project Approvals emphasis shifting: • Sustainability and environment are priorities • Suburbs to downtowns/town centers; placemaking, amenities • Transportation vs. cars; millennials driving less, trucks unwanted • Technological impacts; driverless cars, reduced parking Projects that help communities improve quality of life can receive zoning and public $$$ Q&A:bit.ly/naiopq6 Cities Need Private Sector $$$ Cities need private investment for Jobs & Taxes • Zoning policies focused on retail, placemaking, housing, mixed use, transit • Approving tax increment districts (EIFDs, CRIAs) to induce private investment • Industrial not on a priority except point of sale big box (amazon) Q&A:bit.ly/naiopq6 Tax Hierarchy of Private Investment • Rooms (hotel tax & jobs) • Retail (sales tax & jobs) • Office/Industrial (property tax & jobs)* • Residential (tax loss leader) * sales tax possible but rare Q&A:bit.ly/naiopq6 Next Generation Economic Development Today, Economic Development for Cities is about: Q&A:bit.ly/naiopq6 Outline 1. What do Cities want & need? 2. Changing World of Land Uses – Retail – Industrial 3. Entitlements and Zoning Tools 4. Bright Future, Big Challenges Q&A:bit.ly/naiopq6 Current Trends Cities are Grappling With • Retail is becoming a blend and mix of different uses • Food & Place are today’s anchor tenants • Box retail is shrinking, right-sizing, closing • Trip generators: food, events, medical, housing, education • Need a “place” or “purpose” to attract visits & generate taxes • Consumers shifting to digital and sharing economy • Retailers respond by boosting omnichannel approaches – doesn’t matter where/how the sale is achieved (but it can matter to a city) • Demand for rapid delivery of goods purchased online driving expansion of in-fill last mile delivery facilities • Impact of omni channeling on retail-mix and taxes not clear Q&A:bit.ly/naiopq6 Shifting Landscape Impacts Zoning & Land Use • Technology shifts & evolving consumer preferences are redefining retail & industrial land uses • Rise of e-commerce & demand for rapid delivery of online purchases blending retail & industrial land uses • Retail and industrial become “I-tail” & “E-dustrial” • What should cities support? – Retail changing quickly – Food uses dominating expansion – Infill distribution centers respond to consumer behavior but can be at odds with adjacent land uses and “neighborhoods” Q&A:bit.ly/naiopq6 Food is defining Retail Demand “What’s for dinner honey?” NEW WAVE OF AUTOMATION MARKET HALLS GROCERANTS Q&A:bit.ly/naiopq6 Consumers Are Driving The Change Q&A:bit.ly/naiopq6 Retail Transforming: Finding the Right Blend Delivering Retail Blend based on Trip Generation is Key Opportunity • Internet is primary driver of changes in shopping patterns • Trip generators can sustain centers: entertainment, education, medical, events, & specialty retailers; these plus FOOD are the new anchors • Despite increases in digital market, Brick & Mortar is in demand • Resized “Urban” formats –going small • Pop-Ups popping up everywhere • Internet + Brick & Mortar blending…“staying together for the kids” # of shoppers nationwide lower last Black Friday while online shopping was up 22% Internet sales = over 10% of all retail sales Boost in Last mile delivery demand Q&A:bit.ly/naiopq6 City View of Industrial Development • Can be significant component of cities tax & job base • Some cities prefer to shift to mixed use and retail • Digital economy fueling in-town fulfillment centers • Digital economy fueling under one roof adjacency of offices & industrial • zoning issues: truck trips, adjacencies, hours • No vision of last mile delivery as part of retail or destination or tax strategy Q&A:bit.ly/naiopq6 Outline 1. What do Cities want & need? 2. Changing World of Land Uses – Retail – Industrial 3. Entitlements and Zoning Tools 4. Bright Future, Big Challenges Q&A:bit.ly/naiopq6 What Projects Will Cities Support? . Developers Pursue Projects that Achieve Community Support: . Community support requires communication and compromise . Need community outreach; both online & face-to-face . Primary issues: traffic, safety, noise, visual, adjacencies/social • Cities Will Support Projects that Improve Quality of Life: . Creation of additional taxes & jobs important – quality rules . Quality is in the eye of the beholder . Cities have funding & planning tools to assist projects Q&A:bit.ly/naiopq6 Primary Tax Sources Ground-up & renovation real estate projects that generate taxes through investment & job creation can achieve zoning and funding assistance •TOT Tax(“Hotel”) • Sales Tax (“Retail”) • Property Tax (“New Construction & Renovation”) • Utility User Tax (“Users & Operations”) • Business License Fees / Gross Receipts Tax (“New & Relocated Businesses”) Q&A:bit.ly/naiopq6 Land-Use & Zoning Hierarchy Still Apply Q&A:bit.ly/naiopq6 Environmental Compliance is Achilles Heel • Statutory Exemption • Categorical Exemption (CE) • Negative Declaration (ND) • Mitigated Negative Declaration (MND) • Environmental Impact Report (EIR) Q&A:bit.ly/naiopq6 Cities Have Economic Development Tools Q&A:bit.ly/naiopq6 Outline 1. What do Cities want & need? 2. Changing World of Land Uses – Retail – Industrial 3. Entitlements and Zoning Tools 4. Bright Future, Big Challenges Q&A:bit.ly/naiopq6 Tax Viability and Proper Mix of Land Uses is changing: Q&A:bit.ly/naiopq6 More Changes Coming: The 47% of the Future The 47% - Mitt Romney had the right number, but it really represents something different…and more life-changing Technology expected to replace 47% of existing jobs. McKinsey Global Institute estimates even close to 60% Q&A:bit.ly/naiopq6 TECH IS CHANGING JOBS – First