Logistics users shape area’s industrial real estate
The growing importance of third-party logistics in the northern Nevada economy is beginning to play a significant role in the region’s industrial real estate market.
Whether a 3PL is providing fulfillment operations for an Internet retailer or handling traditional distribution of pallets full of merchandise sent to retailers, companies in the sector are drawn to northern Nevada’s transportation infrastructure and tax environment.
“We’ll be seeing more and more of them,” says Doug Roberts, partner for the Nevada division of Panattoni Development Co.
Brokers and developers say 3PL companies often need space that’s different from the traditional warehouses that long have dominated the region’s industrial landscapes.
For starters, 3PL operators — particularly those that provide Web-fulfillment services — need top-quality data and communications links into their distribution centers.
“That’s a real distinction,” says Tom Miller, president of Miller Industrial Properties in Sparks.
Another key distinction: The 3PL companies that handle distribution for a variety of businesses under one roof want maximum flexibility in their space.
ESFR fire systems — the initials stand for “early suppression, fast response” — almost always are required, Miller says.
Spaces often must be able to meet food-grade standards, even if the 3PL company doesn’t currently have a food-products client.
Tall inside spaces, cross-docked spaces that allow merchandise to flow from one truck to another without stopping on warehouse shelves and large truck bays also are key factors to 3PL tenants, Miller says.
Those companies often pay close attention to building aesthetics — after all, they need to make an impression on potential clients — but they also closely weigh the costs of a nice-looking building.
But Miller adds that office space is less important to those 3PL companies than in years past because they rely on electronic data flow instead of nearby staff.
In some instances, Miller says, a 3PL company may provide services to a single, large national client from a distribution center dedicated exclusively to that client.
Those operations often look for shorter lease terms from landlords, and they pay greater attention these days to the requirements of C-TPAT — a short-hand version for “Customs-Trade Partnership Against Terrorism.”
Those requirements include exterior fencing, guarded gates, designated employee parking areas and tight control of access for employees, visitors and vendors.
“Anti-terrorism fencing in place is a big plus for 3PL firms so that they can go after business that requires that feature,” Miller tells the property owners with whom he works.. “Competitors may have to pass on that type of client need.”
A building owner who is preparing to lease space to a 3PL operator needs to approach the talks from a slightly different direction as well, says Roberts.
For starters, building owners need to carefully check the creditworthiness of a 3PL firm, he says. Although a 3PL may be contracted to provide distribution for a major, financially powerful company, the logistics company itself is smaller and probably doesn’t have the same resources as its client.
In a new wrinkle that hasn’t yet arrived in northern Nevada, Miller says some major national companies are leasing space themselves — taking advantage of their strong credit rating to get attractive lease rates and terms. Then they take bids from operating companies to provide the 3PL services.
“This may be coming to our market as well,” Miller says.
Then, too, Roberts says the relatively short terms of most 3PL contracts — sometimes as short as a few months — don’t lend themselves to build-to-suit construction of a distribution center.
Bankers want to see long-term contracts in the hands of potential tenants before they’ll loan for build-to-suit development.
And that means, the Panattoni executive says, that new 3PL companies are likely to lease space in speculative development projects, exactly the sorts of buildings that the development sector is nervous about building after the lessons of the 2008 financial crisis.
Still, even short-term demands for space from 3PL companies are valuable to owners of industrial properties, says Michael Dermody, the chairman and chief executive officer of Reno’s Dermody Properties. The company has been developing industrial properties in Reno and nationwide since 1960.
“The third-party logistics companies or, as I call them, public warehouses, have been a godsend as a tenant,” he says.
He notes that 3PL companies sometimes lease small spaces that otherwise are difficult to fill and often move quickly to lease space as they respond to a client’s needs.
Besides, Dermody says, the growth of the 3PL sector has provided important support for the entire region.
“They are a valuable part of our economy,” he says.
From a national standpoint, research shows the embrace of digital commerce is a whole decade ahead of schedule thanks to the pandemic. We spoke with the Retail Association of Nevada, Downtown Reno Partnership and the Reno+Sparks Chamber of Commerce to give local context to the growth of online retail.