Industrial Real Estate Developers Need to Accommodate Automated Trucks in New Sites

Allen Matkins Real Estate attorneys Brad Nielsen and Jonathan Consani recently asked CBRE's Global Head of Industrial & Logistics Research, David Egan, about the impact of autonomous vehicles on industrial real estate.

Q: Will we see a time where the logistics cycle is fully automated, from trucking through to delivery and fulfillment at warehouses?

A: If that time comes, it’s very far off. We are seeing a significant increase in automation inside the warehouse, but even those facilities employ a fairly large number of people. There are exceptions, of course, but full, 100% automation is rare.

Automated trucking still hasn’t hit the roads in any meaningful way, but we are getting close to the beginning of broader adoption. Even so, there still will be a person behind the wheel of many automated vehicles for safety reasons and to handle the complex first and last mile of the drive.

Q: What impact would full automation have on existing markets?

A: Full automation would be very helpful for many users who are struggling with labor shortages in the existing core distribution markets. Those markets are not likely to change, so demand for space there will stay strong for the foreseeable future. However, within those markets, users are struggling to find adequate space in a location that can attract the type of labor needed. An automation solution allows for some flexibility on location decisions within a market since automation reduces the need to be near labor pools.

Q: What would be the impact on new markets?

A: Entirely new markets are not likely to appear because of automation. There are some secondary markets adjacent to major markets which could see an increase in demand. That’s because automation in the building and on the road alleviates some of the transportation and labor-cost pressures that force users into certain major markets. I think the greatest opportunity lies at the outskirts of already major markets where, in many cases, land is available. These locations do not work well now because of operational reasons. They’re too far from population centers, too far from transport infrastructure, and too far from labor. But, the introduction of automation can solve some or all of these problems, which could lead to an expansion of the boundaries of these major markets and introduce new (and much needed) development.

Q: We already see the forthcoming proliferation of driverless trucks on the road. With the automation of the trucking industry, where will savings be seen in the logistics cycle? Is there a correlation between reduced trucking costs and lower tenant costs? What does that mean for real estate values?

A: Over time, the costs associated with trucking should decrease as automation becomes more prevalent and less expensive. That will have a significant impact on overall transportation costs in the supply chain. Transportation costs represent at least 50% of overall supply chain costs, so reducing that element is significant. The impact of automation on occupancy costs will manifest in automation allowing users to operate from optimal locations farther out from the expensive markets where many now operate.

Q: Getting more specific, how will we see building design change?

A: Automation will increase the emphasis on higher building heights, as robots in the rack will be able to very efficiently work in vertical space, much more so than people. But, the warehouse will still largely be a big cube as they are now.

Q: After discussing everything above, how far away are we from seeing real changes with respect to city requirements and entitlement changes?

A: I think we’re still fairly far away.

Q: In industrial, what are the key things owners and developers should be focused on today? In 5 years?

A: Developers should be looking to build higher clear heights and should secure land sites that are further out on the outskirts of major markets in anticipation of the rise of automated trucks.