By David Eseke and Gary Collett
Opening a massive regional distribution center or fulfillment center is a huge decision that requires input from various stakeholders. While rent on a 1-million-plus square foot (sf) building is not likely to be a small number, several other key factors may have an even bigger financial and operational impact—especially if you do not take a strategic approach to site selection.
Below, we explore the top four considerations for a new “big box”:
- Facility Optimization
Before starting the site selection process, it’s vital to have a firm understanding of the best type of building for a particular use. It’s also important to establish realistic expectations. One of the very best questions to ask—one that frightens parents all around the world—is “why?” Clients will ask us to identify a 500,000-sf warehouse in Dallas/Fort Worth. We’ll often ask “why?” to challenge their thinking and to qualify how they plan to utilize the space.
Since rent is charged on a per-square-foot basis, the ability to use cubic feet is paramount in maintaining the lowest total cost of occupancy. Consider engaging an industrial engineer or facility design expert to present a few options that would maximize efficiency and avoid unnecessary costs. However, keep in mind that if the building is too specialized, it could present challenges for a long-term exit strategy if the decision is made to purchase the property.
- Supply Chain/Transportation
To oversimplify, big box site selection has a lot do to with where the products are coming from and where they are going. Understanding the various transportation modes and associated costs is key in determining an ideal location.
A good example of this in practice is Ollie’s Bargain Outlet’s recent build-to-suit deal in Wintergreen Exchange, a 71-acre master-planned Class A industrial park in Lancaster, Texas. In marketing the property for developer Jones Development Company, our team highlighted the strategic location of the site, which is just 2 miles from the Union Pacific Dallas Intermodal Terminal and 4 miles from FedEx’s ground hub, and offers quick access to Interstates 20 and 45. Ollie’s saw that the location would be an ideal extension of their supply chain, enabling them to cost-effectively expand into Texas and the Southwest.
Remember: Having the cheapest workforce and lowest rent won’t help your business if the cost to ship to customers eats through that savings. Consider engaging a supply-chain specialist to provide a logistics and transportation study to guide you in the right direction.
This is far and above the greatest challenge facing industrial/distribution users at the moment, and it’s not exclusive to the Dallas/Fort Worth market. As Amazon establishes massive fulfillment centers in all major markets, and provides employees a $15/hour minimum wage, the blue-collar labor markets are becoming extremely competitive.
Users are opting to invest in fully air-conditioned environments as a means to attract and retain talent. As a result, the question is no longer, “Where is the most dense blue-collar labor located?” Now, companies are asking, “Where is the highest-quality blue-collar labor?” High turnover and additional training is too costly. The right location can guard against these risks.
As it relates to taxes, DFW is probably best known for no state income tax, a benefit enjoyed across the state of Texas. But the state makes up for it in higher-than-average property taxes on real estate and business personal property. Autonomy is given to local cities, school districts and counties to set their individual millage rates. To complicate matters, municipalities will offer abatements and other tax incentives for new developments and the creation of net new jobs.
This can be confusing for users who aren’t familiar with the differences. For example, in the South Dallas submarket alone, there are different tax rates for the cities of Lancaster, Hutchins, Wilmer, DeSoto and Dallas. Knowing the differences and how to best take advantage of the tax laws can result in massive savings.
Nowhere was this better illustrated than Stanley Black & Decker’s new distribution center in Northlake, Texas. As our team presented the benefits of the location to the tool manufacturer, we highlighted their potential tax savings in Northlake. Because the tax rate at that location was so much lower than in other parts of the market, Stanley Black & Decker’s inventory savings could result in the equivalent of $0.30/sf of savings annually on 1.2 million square feet—a differentiator that helped to seal the deal.
Strategic Site Selection
As your company considers the best location for your next regional distribution center or fulfillment center, be sure to keep these four important considerations in mind. Working with a real estate consultant with local knowledge and a global mindset can help you to further define your big box strategy to make the most of the opportunity—without wasting valuable time and resources in this increasingly competitive landscape.