SALT LAKE CITY — E-commerce has emerged both as a major driver and hindrance to manufacturing growth in Salt Lake City, where increasing costs of technology are limiting the speed at which industrial users deliver goods to consumers.
The rise of online shopping has been predicated on rapid delivery of product, but achieving an expedient pace of distribution requires greater investment in automated technology that can package and ship goods faster than human laborers.
But e-commerce is not cheap to execute. According to Wick Udy, managing director in the Salt Lake City office of brokerage giant JLL, the cost of delivering an item purchased online generally accounts for about 25 to 30 percent of the total purchase price.
“We’re starting to see a lot of these companies re-evaluate their network,” said Udy. “They’re going closer to the consumer, and that’s helping with logistics costs. E-commerce and certainly manufacturing are really what’s driving our market here.”
Udy made his remarks during InterFace Industrial Real Estate in Salt Lake City on Nov. 29. The half-day conference at Little America Hotel and was followed by InterFace Multifamily Real Estate later that same day. All totaled, the two events drew 306 professionals from across both property sectors, with 158 attending the industrial conference.
Joining Udy on stage for the second of three industrial sessions at the InterFace conference were Stuart Clason, economic development director for Salt Lake County; Gina Moore, director of industrial brokerage at Cushman & Wakefield; Jarrod Hunt, executive vice president of industrial services at Colliers International; Kyle Roberts, executive managing director of industrial/capital markets at Newmark Knight Frank; and moderator Nate Wayman, commercial sales representative at Old Republic National Title Insurance Co.
Growing Labor Concerns
Panelist Jarrod Hunt, executive vice president of industrial services at Colliers International, addressed the issue of labor within the cost structure of e-commerce firms. Hunt noted that millennials’ disinterest in working in industrial settings has contributed to a shortage of qualified workers. What’s more, the labor market is quite tight. The state’s unemployment rate registered 3.2 percent as of October 2018.
Hunt added that in today’s tight labor market, industrial users are being forced to rely more on automated equipment, such as robotics that shelve and package goods. Although expensive, these machines help companies — especially e-commerce firms — bridge labor gaps that would otherwise prevent them from meeting customers’ production targets and delivery schedules.
“There’s more and more focus and a willingness to spend money on robotics and automation to drive the cost of labor out of their process,” said Hunt.
But manufacturers and distributors aren’t just suffering from an insufficient supply of workers. In many instances, the work week of truck drivers is being capped at a certain number of hours for safety reasons. According to trucking firm RTS Carrier Services, drivers can now only spend 70 hours per week on the road as opposed to 82 hours per week in 2013. These new federal regulations, which include limiting drivers to 12-hour shifts, are forcing industrial users to rethink their logistics of delivery. Semi-trucks are now required to have monitoring devices that ensure drivers don’t exceed the limit.
“Electronic log devices have radically changed the trucking industry in this year alone,” Hunt said. “It has taken 18 percent of capacity out of the transportation fleet without taking a truck off the road.”
Development Disconnect
Companies in Salt Lake City’s industrial market may be struggling to fill jobs, but development of new product doesn’t necessarily reflect this trend. According to panelist Gina Moore, director of Cushman & Wakefield’s industrial division in Salt Lake City, new projects are getting bigger, requiring more power and parking spaces for employees and trailers alike.
According to Cushman & Wakefield, Salt Lake City’s industrial vacancy rate currently stands between 2 and 3 percent, which is several hundred basis points lower than the national average of about 5 percent for healthy industrial markets.
The low vacancy rate, combined with demand from tech firms and data center users in the “Silicon Slopes” region that includes Provo and Park City, would seemingly mean that the market has a dearth of quality industrial space.
The high altitude and cool climate have made this region a strong market for data center development, users of which could include government contractors and tech giants that need cloud storage space like Amazon, Google and Facebook, which is developing a 1 million-square-foot data center is in Utah that is scheduled to open in 2020.
But as other panelists pointed out, rent growth in the market has been sluggish and has not kept pace with costs of development. Hefty construction costs driven by a shortage of workers are also choking industrial development in Salt Lake City.
“The state, and we as a community, probably need to spend more time focusing on the Silicon Slopes area around the point of the mountain,” said Hunt. “There’s been a lot of growth with the technology sector — giant job growth there. Those are attractive jobs for that millennial-age crowd.”
— Alex Tostado