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No end in sight for industrial warehouse growth

Sponsored Roundtable discussion

The Central Penn Business Journal hosted an industrial warehousing discussion recently with several members of the development and construction business community. Included in the roundtable were Charlie Courtney, a landuse attorney with Harrisburg-based McNees Wallace and Nurick; Jim Snyder, principal and managing partner at Snyder Secary & Associates; and Seth Hughes, COO of Mowery Construction. Politics, forward-thinking planning, site locations and offering the right solutions to industrial warehouse space were part of the discussion. Cathy Hirko, associate publisher/editorial director for the Business Journal, moderated the discussion. The following was edited for brevity and length.

Meet our panel of experts:

CPBJ: What do you see as your biggest challenge to the midstate’s industrial warehousing landscape?

COURTNEY: The degree of difficulty of the sites. The sites that we have now are maybe — or were yesterday’s B or C sites. They are a little farther off the interchange, which has more impact on municipal infrastructure and are likely to run into conflicts with residential areas and land-use conflicts. Now you have to change the zoning. Zoning and land development ordinances aren’t getting thinner. They used to be maybe, you know, 50 pages, — now they’re, you know, 500 pages.

And when we typically have a project you want to know, what’s the critical path? And it’s usually not the municipal approval. It’s usually some state approval. We have developers from other states that come in that haven’t done anything in Pennsylvania.

And you tell them it’s going to be, you know, nine months to get an NPDS permit. They’re, like, what? The other is the climate. You go back maybe 2010 or 2012 when the economy wasn’t moving and you came in with an industrial project, the jobs were important, and that was a selling point. It’s not so much a selling point anymore.

SNYDER: Twenty five years ago, industrial land at an interchange with utilities was flat and rectangular. It was an easy approval. Now it’s challenged by those sites being more scarce, having more strict environmental regulations, whether it be wetlands or streams or flood plains. A lot of these properties are no longer zoned properly, so they either require rezoning. The land parcels may not necessarily be of adequate size, so we’re finding that many times we’re — have to go through assemblages of several properties, several landowners to get the size parcels that you need to develop the size of warehouses that are being in demand.

HUGHES: The vote is unanimous. Sites. These sites have just gotten so complicated … That’s the most challenging part for us, to both estimate and to construct. Like Jim said, it used to be square and flat. Now I’m often dealing with 30-plus feet of bulk fill. Developers want to hang a hat on a number because they’re making big decisions to spend big money. And so for us, again, it’s hands down, the site, both pre-construction and construction.

SNYDER: Developers are spending, on any given project, a lot of time in the due-diligence phase. We’re looking at everything from title to environmental impacts — what access looks like, traffic impacts, zoning. [Is] there some kind of special relief that’s necessary, or what other type of hoops do we have to jump through to get to that entitlement phase. Part of that is the political climate. How does the local municipality look toward industrial development? Is it favorable? Are they welcoming of these projects? Do we think we’re going to get pushback, challenges? Maybe a township wants the off-site improvements, things of that nature.

CPBJ: Politics play a part?

COURTNEY: Land use is 90 percent politics. You have to recognize that. So if you’re going in with a land development plan and say, the zoning’s right, the use is allowed, it’s by right. Then the law says the plan has to be approved. But that’s not always that clear or that easy. You have political beings that ultimately are going to make that decision, and political beings who, you know, particularly in a place like a borough where it’s — everybody knows everybody. These are their neighbors, their friends. You’ve got to look at it and say why would this board, in the face of 50 or 100 people in the room, why would they approve this? You have to put that municipality in a position where they have enough cover or they have enough belief in that project to make that decision. And some boards have that strength, and some, frankly, don’t. Th at’s inherent in land development.

James Snyder, left, principal/managing partner, Snyder, Secary & Associates, LLC, Seth Hughes, C.O.O., Mowery Construction and Charles Courtney, attorney at McNees Law, attend a roundable discussion on industrial real estate development, Thursday, January 30, 2020 at Central Penn Business Journal. (Markell DeLoatch/for Central Penn Business Journal) –

SNYDER: Everything is about speed to market. Developers certainly don’t want to spend an extra year or two, you know, fighting the political process or getting entangled in some kind complicated zoning matters or permitting matters. You know, so they have to kind of make a decision, are we going to stick with this site, or are we going to move on.

CPBJ: Seth, you had mentioned vertical — vertical building. Is that part of the solution here?

HUGHES: Modifying existing space versus trying to go new, yeah, you’re spot on. We’re starting to see it. For instance, right outside of New York they’re completely out of space. So what space they do have? I’ve already reviewed two-story warehouses prototypes for double-decker, triple-decker warehouses.

CPBJ: Really?

HUGHES: Yes. And they’re coming. It’s going to happen without a doubt. Full loading docks on both levels.

SNYDER: One of the ramifications of that is that as buildings get taller, technology and scarcity of land is driving that, but zoning ordinances are not necessarily keeping up with that. So now you have to go to the municipality, as Charlie mentioned, ask for relief or try to amend the ordinances so that they’re current. And if someone doesn’t want your project, there’s an avenue just to force pushback or to kill it.

COURTNEY: It’s the same issue we had in the early 2000s with suburban sprawl, right? That’s just planning. And that’s where all of this has to go. But it’s a little bit short-sighted to say, well, we want to control the impact of height. What are the implications of that? Well, the implications of that is that we’re going to then need more land for warehousing and distribution because instead of going up, we’ve got to find another site and build a whole new building.

SNYDER: Well the land use regulations don’t keep up with market trends. Th at’s part of the problem. But, this shortage of land, the old adage is they’re not making any more land, so you have to work with what you have. But it creates a situation where developers and property owners have to get creative. You’re starting to see now people are focusing on: hey, how can I develop this brown fi eld where developers in the past would have avoided that at all costs?

CPBJ: Why would they avoid that all costs?

SNYDER: Well, higher environmental concerns, clean-up, liability.

HUGHES: Demolition.

SNYDER: Right. You’re also seeing several places now in the marketplace where developers are redeveloping shopping center sites. Th ere’s one in Schuylkill County where they’re demolishing a mall, putting in a warehouse. It’s a great reutilization of land. And it kind of addresses the point exactly where, you know, retail is moving in the direction of E-commerce, so it’s warehouse distribution.

Charles Courtney, left, is an attorney at McNees Law, Harrisburg. Joining Courtney were JAkes Snyder and Seth Hughes, right. A roundable discussion on industrial real estate development was held Thursday, January 30, 2020 at Central Penn Business Journal. (Markell DeLoatch/for Central Penn Business Journal) –

CPBJ: It’s the new retail.

SNYDER: It’s the new retail. And it’s being replaced. So, you’re having one product type replacing another. I mean, instead of having a dark mall, you have an industrial space.

HUGHES: Like Charlie said, years back that would have been a B, C, D option. And now it’s becoming more because you don’t have the challenges. I mean, there’s a building and the land use is already there. So it’s, like, hey, let’s just spend the money to demolish and reconfigure than try to go through all that upfront.

SNYDER: Charlie and I are working on a project right now redeveloping a quarry site, which is a great opportunity. So we have a quarry that’s no longer functional. Now we’re developing warehouse industrial projects or buildings around it. So it’s a good use of land.

COURTNEY: What you also often see with redevelopment is it’s just not encouraged enough. Municipalities, planners, like to see redevelopment, right? Taking what’s old and making it new. But a lot of times the ordinances aren’t set up for that. Th e only municipality that I’ve actually seen [that] has the infrastructure in place, the ordinance infrastructure to actually promote redevelopment, is Springetsbury Township in York County. They have a flexible redevelopment overlay. It’s an ordinance that gives you flexibility in terms of opening up a variety of uses.

SNYDER: Municipalities have an opportunity to incentivize developers to do that; more flexible ordinances, maybe density bonuses, things of that nature, so if you create that attraction and it’s reasonable, people will move in that direction. We said that Pennsylvania is blessed with 2,500 or 2,600 municipalities. And they all have their own different philosophies on development. So you can with one municipality that butts up against another, and the zoning is incompatible. Th ere’s not that regional planning that you get in some other states. And it’s a hindrance.

CPBJ: Any workforce solutions?

SNYDER: A lot of these warehouses are being more automated, which probably addresses some of the labor issues.

HUGHES: We’re just breaking the surface on robotics, and we’re being asked to do a lot of provisions, a lot of prep for that type of installation. I mean we just did 1.2 million-square-foot warehouse, and there’s eight employees in that warehouse. The rest is robotics. In fact, most of the robotics that we’re being asked to [include] are coming from Asia and Europe. And we don’t even really have very many strong companies in the states that even do it. But I think that will be the solution to the warehouse labor shortage and you will be back to not being so constrained on the geographic location of where these new buildings are going because they’ll be able to be supplemented with robotic labor as opposed to needing physical bodies.

We also approach the shortage from a cultural standpoint, as well. We create a culture that attracts good people then we retain those people, which attracts good clients, which allows us to deliver a remarkable construction experience, build remarkable structures that attract good people with the same client. We’ve been on a steady path of growth. We’re up to 82 employees.

CPBJ: What else is trending?

SNYDER: I haven’t seen any slowdown in this market. And I think it’s been unusual, as compared to other business cycles that we’ve been through, because there’s kind of a new new if you will, where this E-commerce is really taking on kind of a life of its own. It’s replacing the retail experience. The Amazon effect is real. We are starting to see big warehouse distribution centers and then being pushed to smaller markets with smaller buildings; the last mile effect.

CPBJ: The last mile effect?

SNYDER: That’s one where if a user has a larger distribution system in bigger buildings, more regionally, that from there they’re pushing product out to smaller distribution facilities in and near neighborhoods and smaller population centers, so that they can fulfill orders quicker

HUGHES: I think Amazon’s coined the ‘last mile’ thing. But it’s essentially, you have a mother ship and then satellites.

CPBJ: When I’m on Amazon and I want this, and they say you can get it tomorrow, that’s the last mile?

SNYDER: Or maybe you can get it within two hours. That’s kind of where it’s heading.

HUGHES: And to piggyback on e-commerce. They now have a term m-commerce, which is mobile shopping. The question is always when is this going to stop? When is this going to taper off? There’s no end in sight.

SNYDER: And increasing every year.

HUGHES: Somewhere around the 25-percent range of our sales are e-commerce, and we’re struggling to keep up with that. Imagine when this wave comes and now we’re approaching 50 or 60 percent of purchases are all online. I don’t see it ending any time soon.

COURTNEY: And so it becomes a planning problem. I think that municipalities have to have some foresight to say, OK, if these market conditions aren’t going to change, then where and how are we going to accommodate this.

SNYDER: I think it starts even at a higher level than perhaps the municipalities; at the state level, I mean you have to. This is the market. It’s going to happen. You have to embrace it, plan for it. And if you have the ‘we’ve-had enough mentality,’ then you’re going to push nice projects, employers and so forth, maybe to other states. I think we need to collectively, as a development group, make sure that that doesn’t happen.

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