As companies continue to try and stabilize after the disruptions of the last two years, industrial space is playing a key role in their response. 73% of all available space in the United States was booked in the first quarter of the year, indicating that the lack of space seen today will either continue or become more acute in the coming months – even as labor shortages persist and interest rates increase.

Supply Chain Now’s Scott Luton was recently joined by three people with considerable expertise in this area. Matt McGregor is an Executive Vice President at Colliers International, Nick Pell is the Chief Investment Officer at Link Logistics, and Brandon Page is their Executive Vice President and Head of Leasing.

They took this opportunity to discuss what they are seeing in the industrial space today and how a number of macro trends are likely to come into play:

• Whether talk of reshoring is translating into action, and where in the country new construction is focused
• What we can learn from labor analytics and how it affects the ROI on investments automation
• Their projections for rental rates and optional deal length

Intro/Outro (00:03):

Welcome to Supply Chain Now, the voice of global supply chain. Supply Chain Now focuses on the best in the business for our worldwide audience, the people, the technologies, the best practices, and today’s critical issues, the challenges, and opportunities. Stay tuned to hear from those making global business happen right here on Supply Chain Now.

Scott Luton (00:30):

Hey, good morning, everybody, Scott Luton, and special guest host, Matt McGregor, from Colliers here with you right here on Supply Chain Now. Welcome to today’s show. Matt, how are you doing?

Matt McGregor (00:39):

I’m doing wonderful. How are you doing, Scott?

Scott Luton (00:41):

I’m doing fantastic. The weather this time of year in the State of Georgia, it can’t be beat, so enjoying that, but getting ready for a big episode here. Matt, with your help, we’re going to be diving into the world of supply chain real estate, industrial markets, and really, overall infrastructure. So, big show lined up, right?

Matt McGregor (00:59):

That’s right. Excited about it. It’s a crazy time to be talking supply chain. I don’t know about you, but every day, I get home and there’s a stack of boxes that wasn’t there before COVID.

Scott Luton (01:09):

We might just talk about supply chain every hour here at Supply Chain Now, but, hey, we love it. We’re big supply chain nerds, but we’ve got big guests here today. I’m really looking forward to learning a ton and offering up some actual insights to our global listeners. So, with that said, Matt, I want to welcome in our two featured guests, Nick Pell, President and Chief Investment Officer with Link Logistics, and his colleague, Brandon Page, Executive Vice President and Head of Leasing with Link Logistics. Hey, Hey, Nick, Brandon, how are we doing?

Nick Pell (01:42):

Excellent.

Brandon Page (01:43):

Hey guys.

Scott Luton (01:44):

Well, we enjoyed the pre-show, both of y’all bring quite a bit of character to the conversation, and I think we’re going to not only inform our listeners, but I’ve got a hanker that we’re going to be entertaining them as well. So, great to have you both here at Supply Chain Now.

Nick Pell (01:59):

Well, it’s great to be here and thanks for having us.

Scott Luton (02:02):

So, on that, so Matt and I, as we’re doing our homework before this conversation, we’ve got a fun warmup question we’re going to pose to you in just a second. Before we get there, let’s give you a chance to kind of share with our listeners a little about yourself. So, Nick, let’s start with you. Really, briefly, tell us about yourself.

Nick Pell (02:21):

Well, like Scott said, I’m the President and Chief Investment Officer at Link Logistics. I live here in New York, New York, where I’m sitting here today, and I’m married, two young kids, and spend my days working on industrial real estate transactions and working with our development team to deliver new buildings for our customers across the country, and we’re busy as ever here, growing the business at Link. And for those that don’t know, Link is about a 550-million-square-foot logistics portfolio backed by Blackstone, and we’re about, I think it’s about 3,300 buildings now across the country. And so, yeah, a lot of different types of real estate, all servicing a wide variety of different customers in the logistics space.

Scott Luton (03:19):

Nick, that’s quite an inventory, Nick. One quick follow-up question before I flip over to Brandon, did you grow up in the New York area?

Nick Pell (03:28):

I grew up in Newport, Rhode Island, so not too far away, a small, little coastal town there, and came here after college, and did a few tours of duties in other cities, but ended up back here in the mid-2000s.

Scott Luton (03:44):

Love it, love it. Good stuff. Okay. So, Brandon Page, Brandon, good afternoon. How are you doing?

Brandon Page (03:51):

I’m great. Thank you for asking. Yeah. So, I’m Brandon. I oversee leasing nationally for Link and also work with our team at oversees, our largest occupiers. I’m based out of Park City, Utah, which is my little mountains in the background, homage to that. Married, have two kids, nine and six, grew up in Billings, Montana, and I lived all over the country and worked for a number of good companies. This is actually my second stint with Blackstone, having been a part of their original InCorp portfolio, and then came back in 2017 to start, kick this off to what is now Link today, which is significantly bigger than when we started with just three of us back in 2017.

Scott Luton (04:35):

Man, it sounds like y’all have been through a ton of growth, and I can only imagine what your world is like here in the current environment, and we’re going to touch on a lot of that, and we’re going to share a lot of what your observations, and your experiences, and your expertise with our listeners. But before we do, Matt, I love this question that we’re going to have a lot of fun with, with all three of y’all, as a matter. Because I remember my first car, and I remember, I could probably write about three books about what that car experienced, but we’re going to have to save that for a later episode, but, Nick, you’re going to go first. You’re going to be our Otis Nixon, maybe, famous Atlanta Braves leadoff hitter, and let us know, what was the first car that you purchased?

Nick Pell (05:20):

So, this is a little embarrassing, but the first car I ever purchased was, I just moved out to Los Angeles from New York, I was pretty young and there’s an old adage that you dress for the job that you want, not the job that you have. Well, in Los Angeles, they wear Vans and t-shirts, so I think you drive the car for the job that you want, not the one you have. And so, I went and got a used 2000 BMW 740i, which was a kind of a nice car for a young age. And I lived in a very tiny, terrible apartment, but I had a very nice car that I drove, and I was working at a movie studio at the time, so it felt appropriate. It ended up being a lemon and I sold it shortly thereafter, but that was my first car.

Scott Luton (06:07):

I love it, man. I feel like there are so many stories there, but we’ll save those for a later time. Brandon, same question, first car you purchased.

Brandon Page (06:15):

Yeah, it was basically the opposite of Nick. I lived in New York City out of college, and was there for a couple years, and had moved back, and was looking, getting my MBA or like figuring out what I was going to do with my life, and living with my in-laws, and I bought a used Jetta. We named him Jimmy the Jetta. And I’m 6’4”, barely fit in this thing to begin with, and you’re driving along, and the four banger was just screaming, and we’re going like 50 miles an hour, so it was not the 7 Series Beamer, but it got me from point.

Scott Luton (06:50):

Nice. A tale of two cities there a little bit, Matt. Thank you, Brandon and Nick. And, Matt, same question, first car you purchased.

Matt McGregor (06:59):

Absolutely. Well, I’m a child of the ‘80s, muscle cars, that was my introduction to the cars. It was a ‘77 Monte Carlo, white, Diamond Tuck interior, Swivel Buckets, herd shift kit, 3074 barrel, got after it a little too much and blew the engine about eight months later.

Scott Luton (07:20):

Man, I’m not sure what you just described. It could have been a space shuttle for all I know about automotives, but undoubtedly, some stories there. Alright. And by the way, folks, I’m probably a big nerd here, but I had a Honda Civic, a four-door Honda Civic was my first car. I got about 372 miles to the gallon and it worked really well. Okay. So, Matt, we got to get to work here. We got a couple brilliant minds, informed on what’s going on, making deals, helping to power the global supply chain to do what it does, right? Where are we starting, Nick and Brandon?

Matt McGregor (07:57):

Let’s dive into today’s kind conversation, gentlemen. I’m going to kick it off with you, Brandon, the industrial growth over the last 24 months in the US has been enormous. What has Link seen related with overall industrial growth in the US markets?

Brandon Page (08:14):

I think what’s most fascinating to me about the last couple of years, particularly 2021, is just the broad-based demand. It was every market, every size range, every submarket, just had like relentless demand, and we’ve certainly seen it flow through the absorption numbers. And if you look at like specific markets, SoCal has been in the league of its own entirely. I mean, 110% year-over-year rent growth just in the last 12 months, 75% in the IE East. And then, you get more to like South Florida, which is in the 20% range, Seattle, Matt, you’re close to home there, New York, New Jersey at 18%. And even if you look like the low end of the spectrum out of the top 50 markets, there are like six that are below 10% and only one that’s like in the low single digits. So, really remarkable, broad-based growth. And we’ve certainly seen that flow through, really, from an industry standpoint, through occupancy, through this consistent rent growth across the board. It’s been really a fantastic couple of years for the industrial market.

Matt McGregor (09:21):

Those are just insane numbers and facts, Brandon. I know one of the tightest market is probably the inland empire, isn’t it?

Brandon Page (09:30):

Absolutely. Yeah. I think there’s like 0.3%, which it’s like a couple buildings and a billion-plus-square-foot market, so yeah, there’s just nothing available. And there’s still a fair amount of supply coming, but that market above others has seen so much preleasing. And I think like we look back at the deals that we signed mid-2020, and we were high-fiving at what we thought were all-time highs, and those rents today are 100 to 150% higher, and there’s really no slowing down the demand that we’re seeing roll through that market. It’s always been the premier market and that has not changed at all despite the fact that rents are now pushing $2 monthly.

Matt McGregor (10:11):

That’s just insane with that kind of growth. Nick, anything on that, and I mean, specifically, when you’re talking about rent growth like that, how are tenants taking that in? How are you guys explaining that kind of rent growth?

Nick Pell (10:25):

Yeah. Look, really, there’s just not enough space, is another way to think about it, I mean, and it’s overwhelmed by the demand that Brandon described, and it’s that broad demand across the country. And landlords like us are scrambling trying to service our customers’ needs, and they want space, they need space, they’re pursuing new business, they’re growing, and these are tough conversations, right? I think the most important thing for a lot of these customers is just making sure they can get, so they can secure to meet the demands of their business. And so, not that rent isn’t a concern because it is for all customers, but I think just the lack of space that’s available is a major issue for them, and they’re also focused on all the other rising costs in their overhead, which has been the number 1 issue for probably every company in America, which is labor and access to labor to run their businesses. And so, tremendous, and I think when you really look like at all the markets, pretty much everyone has outperformed the inflation number, too. So, actually, we’re growing rents at a pace that’s outpacing inflation, which I think is a really good sign for our business and this asset class, as you think about from a real estate standpoint, going into an inflationary environment, which we’re most definitely in at this point.

Matt McGregor (11:57):

That’s a great point, Nick, and that kind of rolls me to my next question. And you touched on labor, labor certainly has been an impact of companies assessing whether they can nearshore or onshore. What impacts has Link seen related with geopolitical changes, and around nearshoring, and onshoring, and then exit out of China? Are you guys seeing more deals here that are transferring from other markets, including China that is bringing some manufacturing home?

Nick Pell (12:31):

We’re watching it closely like everybody is, and I think there’s been several high-profile examples of this announced across the country, industries consolidated around us conductors, things that are of national interest, items and goods that there’s a benefit to being closer to the end customer, where the customer’s input can more easily get into the goods and the production plan. The reality is these are large-scale investments that take multi-years to develop and plan. And so, we’ve seen, certainly, announcements around these, some of the electric vehicles and battery plants as well.

Nick Pell (13:10):

The Sunbelt obviously winning a lot of these announcements, but not all that way. I mean, there are some in the Rust Belt Midwestern market, lower Midwest markets, too. So, I think we’re all watching it closely, we’re thinking about the impacts and downstream impacts to our business around it. They do tend to be in areas where land’s a little cheaper, you can build a huge plant, and then we saw that with the auto facilities down in the Southeast, with BMW, and Mercedes, and the like. But we’re looking at Austin and Phoenix, where these big announcements had been made, and we’re seeing just tremendous growth, and trickle down from this investment that we expect just in those two markets as an example.

Matt McGregor (13:56):

That’s a great point. With these firms really studying how that would impact them to onshore these manufacturers, when you guys look at doing development, I’m just curious, you touched on labor, are you guys running those labor analytics, and communicating to potential users how those labor analytics look on potential developments?

Nick Pell (14:22):

We are. I mean, we’re evaluated on the front end when we get into a process where we’re purchasing a piece of land, and beginning an entitlement process or construction of a building, and then as we get closer to the leasing of the space, that’s part of our value proposition, is we are building a tremendous database of information about our buildings and how the buildings fit into all the different key metrics that customers are looking for, labor, proximity to transportation nodes, rooftops to the extent you’re going to be doing distribution, but obviously, room labor as well. So, the beauty of onshoring all these huge investments are these are jobs, right? And so, for our business, we’re storing product to supply things for local economies.

Nick Pell (15:09):

And so, as these jobs come into some of these markets, that’s just more goods and services that need to be provided, and you need a place to do that. And so, that’s hopefully the stuff that we’re doing with our development. In Austin, we’re the largest landlord in Austin from an industrial standpoint and we’re the largest developer. I think we have about 5 million feet on the ground on there, and we’ve got about 4 million feet under development, and it’s not a very big institutional stock. There’s probably 60 million feet in the whole market. So, it’s a market we really like. It’s small, it’s not a regional distribution market, but it’s got really great demographics, and people and jobs are moving there.

Matt McGregor (15:51):

That’s great. I know that market’s on fire and congratulations on your success there. Brandon, you touched earlier on some amazing rent growth numbers. We know what has happened over the last two or three years, unbelievable rent growth as you’ve pointed out, when is this going to stop and/or is it going to stop? And what are your realistic estimations of rent growth kind of in the top 10 US markets overall over the next 24 months?

Brandon Page (16:22):

Yeah. Do you remember when we used to have those conversations about what inning we’re in, and this was like five years ago, I think we’re in the middle of like the longest game ever that, now, we’re like watching it in hyper speed and getting like five years in one. I think like, look, we look at, obviously, the demand side and the supply side. So, if you look at like just this last quarter, 73% of all available space that was available, like the whole country was leased in the first quarter, so like leasing absorption nationally has held consistent. I think like I look back in our portfolio a-year-and-a-half ago, and we were low to mid-90s, everybody’s up to 98%. So, you’re still seeing the same leasing volume, which means there’s no space. Like effectively, everything is leased up.

Brandon Page (17:06):

I think that’s certainly telling for the balance of this year. On the supply side, there’s definitely a wave of construction that’s coming in a lot of markets. Markets, lower-barrier venture markets like Phoenix, Vegas, Indianapolis, and Dallas have just a massive amount that’s coming. Now, when it comes relative to demand, as long as the demand side’s there, you’re seeing more preleasing than historical averages. So, now, it seems like it’s in check. If we see the consumer start to spend a little bit less, if we see people that are taking a break or not with the uncertainty just generally going on in the world, do they pause? Does that create some sort of a gap on the demand side? But I’ll tell you what, just for the balance of this year, it’s hard to find a market that’s got any sort of balance. It’s all completely imbalanced to the landlord at this moment.

Matt McGregor (17:56):

That is just crazy after the rent growth that you were talking about to predict that we’re going to continue to see that. Do you see by the end of two or three years, is it going to get back to that normal, say 3 type of bumps, or is there so much demand that you just can’t predict when we’re going to see a normal?

Brandon Page (18:18):

I think inflation’s an interesting factor into that, too. So, like historically, we go back to annual bumps, we’re just CPI, and then all of a sudden, we’d sign a lease two years ago, and now, we’re 30% below my market. So, you’ve got the actual rent component, as Nick mentioned, that’s outpacing inflation, but then you layer inflation on top of that, it’s hard for me to believe that we’re going to go back to a standard 3% annual bump, markets go up 3%. But again, like supply and demand is a fickle, simple concept that bottom line is that if there’s space is sitting available for a nine to 12-month period for a merchant developer, they’re going to start to figure out a way to monetize that, whether that’s splitting it up or dropping their lease rate, that then makes other buildings that are competitive.

Brandon Page (19:01):

So, I don’t see it. Again, for this year, we’ve obviously got a lot going on with the economy, and potential slowdown, and just the change in potential cash that people have to spend on goods that that’s somewhat of a gray area in the future. I mean, we’ve all been saying for 18 months, because nobody can really see further beyond that, but it is still hard to believe sitting here today that there’s something out there borrowing like a big black swan event that changes the demand for consumption to goods. And then, you layer on e-commerce and the tailwinds that this industry has that’s still trying to catch up from the COVID screw up, it’s certainly opportunity.

Matt McGregor (19:45):

That’s right. And, Brandon, I know I’m seeing a lot of landlords across the country favoring shorter-term deals, and as opposed to 10-year deals, maybe doing five-year deals, just because of that inflation that you touched on and that kind of rent growth. Obviously, you’re not going to contract 10 or 15% annual bumps. Are you guys more motivated to shorten those terms a little bit?

Brandon Page (20:09):

Absolutely. I think there used to be a discount for longer term and a premium for shorter, and I think you’ve seen the inverse in that. There’s absolutely a premium for locking in rates for an extended period of time. Again, there are certain assets where you’re happy with the term, but at the end of the day, like we want market rents, we want to have market rents in our buildings. We’re willing to take the risk that market is going to continue to rise. So, by nature, for high-quality, infill, well-located, high-demand buildings, we are going to want to try to get close to market on a regular basis possible, which leads us to doing short-term deals.

Matt McGregor (20:46):

And, Nick, talk to us a little bit about how that rent growth is impacting the capital markets. We’ve obviously got some other things going on now with interest rates inflation, but talk to us about the US kind of top 10 markets and how you guys are dealing with that rent growth and underwriting? And where are we going with this? What’s the temperature out there?

Nick Pell (21:12):

We’re constantly in the capital markets. And the only thing I can say conclusively across the board is it was really challenging underwriting for everyone, whether you were buying, selling, whether you were us or our competitors, and keeping up with the rate of change for these rents across the country, and it was most pronounced in the highest growth markets, has been a challenge. I mean, I’m not sure anyone saw this coming, and we were very active acquirers, we bought about $16 billion of industrial last year, but the rent growth that we’ve seen on the stuff that we’ve bought has far outpaced our expectations. And so, I think we continue to be really focused on what’s going on in our portfolio. We have a lot of data points and a lot of leases.

Nick Pell (22:02):

I think we’ve got about 9,000 leases across the country, maybe a little bit more at this point. And so, we’re constantly looking about what we’re seeing in our own portfolio and translating that back into our view of the capital markets, but again, it’s been a challenge for all of us to keep up with it. I will say that people have started to be a lot more aggressive, because they realize that we were all a little bit too conservative as this growth cycle happened. And so, people, at the start of the year, have been very aggressive in capital markets in forecasting growth, both rent curves, starting rents, picking up the last sort of rumor deal that’s happening, and using that in a model, and so forth.

Nick Pell (22:49):

So, I think that dynamic continues to play out. Certainly, the gateway markets, Seattle, Northern California, Southern California, New York, New Jersey, and South Florida, you’ll continue to see just this really outsized growth, but it’s the phenomenon that happened in underwriting across the country. And then, you mentioned the interest rate environment, I think over the last 45 to 60 days where we’ve seen base rates and spreads both move against us, I think everyone’s still digesting what that means for returns. And as we’ve just laid out, there doesn’t seem to be a slowing up on the demand. We all have very good visibility on the supply in all these markets, given how much longer and more difficult the development process is really across the country now, so you end up having much greater supply visibility. And so, with sort of an insatiable amount of demand, I think that supports our bullish view on rents that Brandon described, and so that stays as an input as you think about the market, and then it’s really just digesting the higher borrowing cost if you’re a levered—a star.

Matt McGregor (24:05):

I think you said it perfectly, you got that aggression out there, wanting to be aggressive to be able to acquire some stuff, but you got this very analytical pause to digest these new challenges out there. What are your predictions kind of over the next 24 months, either one of you, related with maybe right into it, where are we going with cap rates? Do you see interest rates tapping out? Kind of what are your predictions based on your knowledge of what’s going on out there?

Nick Pell (24:38):

I think interest rates, I mean, they’re going up. I mean, the feds said they’re going up, and I think the hard part at this moment is that spreads have also widened, so all in borrowing costs are getting double-hit right now. And so, at this moment in time, I think, again, levered buyers are struggling with how to price deals and what kind of cushion, and I think we’re all looking for a little bit more normalized financing markets and a little relief from our lending partners out there, even at higher roll in borrowing costs, where we can at least know the world is. Sp, I think that said, the rank growth dynamics and the secular trends still make it a very attractive environment, so there is a ton of equity capital stacked up to invest in the space.

Nick Pell (25:33):

Being able to have pricing power on your buildings that outpaces inflation is a relatively attractive asset class, and so I think it’ll continue to attract capital as it has over the last several years disproportionately, I think. And so, at some point, I do think like what ends up happening is sort of returns come down, right? If your borrowing costs go up and there’s a lot of equity there, your returns come down. And so, function of how much rank growth sort of ultimately yields in terms of returns, but I don’t know, I mean, it’s exciting times out there, I will say, so every new data point is very interesting. So, we’re watching it closely.

Scott Luton (26:24):

So, we got to ask you a question, Nick, that we were talking pre-show. Is industrial still the darling then?

Nick Pell (26:30):

Look, I think it is. I mean, I think we have a lot of very positive fundamentals. Um, we have customers that are pressed to retain more inventory and buffer themselves from supply chain shocks, as we’ve all witnessed. We’ve got the onshoring we talked about. We have the e-commerce trend, which continues. We have yield barriers to supply. In particular, in the most infill locations, the densest pockets of these major cities in the US, where entitlements continue to be more and more challenging every day, yet customers are demanding this value proposition from the folks that they ordered goods from to get goods to them quickly and in massive quantities. So, I do think there’s a ton of fundamentals that have real legs here, and it continues to be one of Blackstone’s highest conviction investment themes, and we’re just dealing with the noise of interest rates, and figuring out some of these supply chain issues and the impact timing on building in the development cycle, but we’re still really happy with our portfolio and very convicted on the space.

Scott Luton (27:51):

So, I’m writing it down, still the darling. So, thank you there, Nick. I appreciate that. Okay. So, we’re going to change gears a little bit here. Really, real estate isn’t my thing, right? So, I’m learning a ton here from Nick, and Brandon, and Matt. It’s fascinating. It’s clearly a fascinating time to be a guru in the real estate and infrastructure business. But quick aside, Brandon, you mentioned the baseball analogy, and if y’all can’t tell, I’m a big Atlanta Braves fan. No one saw the World Series thing coming last year, and it blew us away. Are all three of y’all—and we’ll stick with Nick for a second. Are you a baseball fan? Who’s your team?

Nick Pell (28:29):

I grew up a Red Sox fan, and I’m raising some Yankees fans here, so you can imagine what goes on in my house, but I didn’t play baseball, but I do like to sport and my son seems to really like it.

Scott Luton (28:44):

Love it. I love that. A really fun rivalry there, of course. Okay. Brandon, same question. Are you a baseball fan? It’s back, and thankfully. Are you a fan? Who’s your team?

Brandon Page (28:54):

Yeah, absolutely. I actually played baseball through college, so spent a lot of my youth on the baseball field, so 100%. I grew up a Mariner fan with the Ken Griffey age and Jay Buhner, really been tough to be a Mariner fan for the last, I don’t know, 20 years. So, it’s like when I lived in New York, we kind of picked up the Yankees, went to a ton of games. And so, I still definitely root for the Yankees.

Scott Luton (29:17):

Love it. Of course, the kid, Griffey Jr. won of the sweetest swings in all of baseball, and Buhner had an incredible arm, hit a bunch of home runs, but he had an arm from the right field, I believe, Brandon. And hopefully, Seattle will be back. Those are some really good teams back in the ‘90s and 2000s. Okay. Matt, final question, you a baseball fan, who’s your team?

Matt McGregor (29:41):

Well, if I’m a baseball fan, it’s Seattle Mariners, but I’m definitely a football guy, go Hawks.

Scott Luton (29:48):

Okay. Alright. Good stuff. Hey, really, I’m just glad baseball’s back. We need that departure with all that’s going on in the world right now. And regardless, we’ll see what happens with the Mariners, and the Red Sox, and the Yankees for your son there, Nick, and of course, the Braves. I want to shift gears here. Infrastructure, there’s been a ton of cliches in the recent years. We’ve heard a lot about infrastructure, whether if you’re in industry, of course, because it is a big part of supply chain, or on the policy side, the governmental side, we know big bills have been working their way through our government, but I want to talk about it mainly from a spec building, and construction, and supply chain point of view. And, Nick, I want to stick with you here. Let’s talk about development in the US on the industrial side. Let me give you a three-part question and you can pick wherever you want to start. Are we going to continue—we talked a lot about demand in the first half of this interview. Are we going to keep seeing demand outpace construction? Where’s the hot markets? And what’s Link built?

Nick Pell (30:57):

So, first of all, what we’re building, so we’ve got about, approaching a 50-million-square-foot development portfolio, about $9 billion across the country. So, very active, very ambitious development effort here. I think it’s over 150 different buildings going, with half of them in Southern California, South Florida, and the New York, New Jersey Metro area. And this really focused on these dense locations where it’s difficult to deliver product. That’s where our customers need the new product the most and where vacancy is the lowest. It’s also the most challenging place to build. From an entitlement standpoint, you’re normally tearing something down, dealing with environmental problems, various challenges to be able to deliver the new building. And then, on top of that, if that weren’t difficult enough and the timelines weren’t pushed out on all that, obviously, the hard cost inflation that we’ve seen across the country compounded with the land price appreciation as rents have grown has caused the replacement cost to deliver new buildings to those markets and the gateway markets just to have phenomenal growth over the last several years.

Nick Pell (32:18):

And I mentioned earlier, the visibility into the supply pipeline has probably never been better for all of us in the marketplace, just because it takes longer to deliver, but it’s also harder for everyone to forecast cost appropriately and to be able to deal with the timeline challenges. And so, we did see some supply chain improvements into the end of last year with steel prices coming down and some availability of some of the key resources in delivering our new builds, but you add what happened geopolitically in the first quarter this year and it continues to skyrocket.

Nick Pell (33:02):

And so, we’re seeing 20% increases in costs of hard costs over a six-month period. In some cases, different parts of the country, varies a little bit, but again, very difficult to underwrite and predict, and all just goes into what you’re delivering at the end to our customers is it’s a knife fight to get up a really high-quality building in these great locations. But we’re committed to it, and we’ve got a great team, and it’s a growing team, because it’s roll up your sleeves and get into it kind of work.

Scott Luton (33:45):

Well, and clearly, you’re making big, bold moves such as the Austin expansion you mentioned earlier in the interview, but it’s not for the faint of heart and there certainly is no shortage of demand. Brandon, I’ll give you a chance to kind of weigh in on what you heard Nick share there when it comes to hot markets, what Link’s doing, and certainly demand outpacing construction.

Brandon Page (34:05):

Yeah. I guess I want to point out, too, we’re not building a brand new building out in the next wheat field. Most of these are infield. There’s a lot of entitlement that needs to be done. I would say location is becoming—location’s always been the most important attribute, it’s now more and more important. And so, finding key infill locations, we hear constantly from our customers that they will take a Class A location over a Class A building that’s in an inferior location. So, to the extent that we’re buying land, buying development opportunities and key infill locations that are going to drive the most amount of demand, I sleep better at night knowing we have that strategy versus owning, like you said, the next cornfield out on the exit that, today, doesn’t exist.

Scott Luton (34:51):

And, Matt, I will give you a chance to weigh in here on what Brandon and Nick both said. Square with some of the things you’re seeing out there.

Matt McGregor (34:59):

Yeah. I’m just seeing continued demand. I will tell you, representing large tenants can be extremely frustrating in markets with construction prices going up, demand have been so high, rents doubling as Nick and Brandon have outlined, and more. And just in some markets you’re going in, you just don’t have an option. Right now, in Seattle, if a tenant were in Seattle and they needed something over 250, 300,000 feet, there are no standing structures available. So, it can be tough finding product and tough representing your clients, when you got this great deal and you don’t have a building for it, it can be frustrating, for sure.

Scott Luton (35:43):

Okay. So, I want to ask you all this question, and Nick, I’m going to come back to you, because we’re going to get a little more specific around construction, and I’m going to ask you some things I know nothing about. Real estate and construction’s not my thing, Nick. So, shell building specs, what changes there? Clear height, floor slab, dimensions, all that stuff, tell us what’s changing.

Nick Pell (36:07):

Yeah. Look, I think everything’s on the table as customers are evaluating what to do in the space and how to adapt to their and customers’ needs, right? And so, what I mean by that specifically is, in particular, in these locations that are distribution facilities to service rooftops, the return on investment on automation is very, very high. To increase throughput in a building for these customers is very important. And when you start talking about the number 1 issue being labor for customers, being able to increase throughput in the same building through automation is a really key attribute to be able to deal with their customers. And then, rising rents on them on a per-square-foot basis only exasperates that right from their standpoint.

Nick Pell (37:02):

So, the implication of that, I think, is higher and higher cube in infill locations, so we are certainly considering those on a speculative basis, and then talking to customers about that for more customized buildings, and then that has implications for the slab, and floors, and everything else. So, that would be sort of one general theme. I think power and access to power capabilities is certainly front of mind. And then, I think it extends also to, as we think about keeping the facility to have maximum optionality around electronic vehicle charging and other changes that we anticipate in the business, but are still in a relatively nascent stages from a use standpoint. When you’re spending all this money and time delivering a state of the art product, you want to make sure it’s going to have staying power and have flexibility to adapt as the customers adapt their needs.

Nick Pell (38:07):

So, dialogue with our customers that in the effort that Brandon leads for us, their representation, folks like Matt in the Colliers team and his colleagues across the country, and all of the agents. And so, I think everyone’s figuring this out real time, and the customers are, too. And our goal is just to be able to be a resource to help them figure it out, help provide the solutions, and I think be able to deliver this space to them where they want to be.

Scott Luton (38:42):

For the long haul, too, is one of the things you’re making sure.

Nick Pell (38:46):

For the long haul, yeah. It’s a lot of money, they got to invest a lot of money.

Scott Luton (38:49):

Yeah. Brandon, I give you a chance to add to what we heard Nick share there.

Brandon Page (38:53):

Yeah. I think like the robotics piece is interesting. These are conversations that we have on a regular basis, and like not in the sense that automation is going to take away from employees, it’s really productivity, potentially a better work, quality of life. So, like when you walk into these super high-cube, dense automated facilities that Amazon’s got a 10-plus year head start on, it’s not less people that are being utilized in there, it’s really more efficiency. So, like you’re seeing massive lots for car parking to accommodate those people. And even as Amazon steps back and looks at adding, how do we add more automation to become more efficient? It’s really not in place of people. So, finding, again, the location ties to the labor side, and it’s the number 1 factor when these guys do surveys is like, where can we put the building? First of all, that needs to be a big enough site. You got to be able to get it through entitlements, but you’ve got to have the parking for it, and have the staff and the labor to support the increased output in the facility.

Scott Luton (39:56):

Brandon, let me ask you a follow-up question, because I bet a lot of our listeners probably aren’t experts in the construction and the real estate side of things. When you say entitlements, because I’ve heard you reference that a couple times, what does that mean when it comes to construction?

Brandon Page (40:13):

It’s basically getting the city to allow the use that you want, to basically sign off on the development. A lot of times, there’s a change of use permit that requires them to actually change the zoning for a specific site to build a warehouse building. And as we’ve seen, some cities don’t like it, some cities don’t want to have more cars and more trucks going through their neighborhood, which makes it a little bit more prohibitive, where you could go, wow, that’s a fantastic place, and a super location for a warehouse facility, and the cities won’t allow you to do it. So, it’s kinda a combination of, one, finding a land that’s big enough, and two, a city and a jurisdiction that allow you to develop it.

Scott Luton (40:47):

I appreciate you sharing that. I think everyone can really relate to that. And I think I saw it put in one Wall Street Journal article, that as consumers, all of us want that same day or next day delivery as long as it’s being fulfilled by a center in another town, right? But to meet that demand that all you’re speaking, that we’re all speaking to and the expected service levels, that requires a lot of infrastructure that everyone here, the panel here is speaking to. So, Matt, I’ll get you to weigh in here, I want to make sure, Nick and Brandon both have been speaking to some of the change and the innovations they’re seeing when it comes to construction plans, but, Matt, anything else that you want to add when it comes to these ever-changing building specs?

Matt McGregor (41:38):

Yeah, certainly. I mean, as always, we’re seeing buildings being constructed with taller and taller clear heights for cubic storage capacity. And certainly, that requires a better slab, a thicker slab that can take more weight, so we’re seeing those changes. I think most of the technology that we’re seeing is not improvements necessarily on the cell, but inside the box. Certainly, Amazon, as mentioned, has been an innovator and a leader in that automation inside the shell, but I walked in just a simple distribution building the other day with a local firm, that there was a drone flying around the building taking inventory. So, we’re seeing that, we’re seeing the Google Glass, the inventory glasses that as you look at the inventory, they’re recording it, and seeing things in even simple one-off companies technology changing that. So, I think it’s important to stay up on those trends to be able to advise on that with your clients, but we’re seeing a lot, I would say more innovation inside the box certainly than the box itself.

Scott Luton (42:50):

Well, it’s a great segue. Brandon, I will come back to you here, and we’ll talk about innovations related to efficiencies or technology, as Matt mentions. What are some things you’re seeing there, Brandon?

Brandon Page (43:01):

I’ll go back to the robotics thing, because I think that we’ve mentioned a few times, but it’s also the number 1 topic. I feel like we’re seeing a new automation robotics company born every day. We, at Link, we spend a lot of time trying to figure out how we can leverage our economies of scale and our platform to help our customers, and part of that vision is to figure out what’s the right group on the automation side to partner with. And take Amazon aside, but say you have a small microfulfillment company that’s trying to compete with Amazon, they don’t have the upfront capital to spend, so like is there a way for us to ultimately finance some of that, be a partner with them? There’s a software component. There’s the actual physical robot or robotic unit that’s being used. So, like there’s multiple, and I’m learning about different acronyms that I didn’t know three months ago in a lot of the discussions, and it’s evolving daily, but this is definitely not something that’s going to go away. I do think there’s a real need for it, and I think Link, we’re in a really unique position to partner with our customers and help them and their business by figuring out a way to do this for them.

Scott Luton (44:10):

And, Nick, I want to circle back to you. When we talk about innovation, and we talk about, it sounds like to me, Link is really closely aligned, in lockstep with your customers or what you need, and then going to work to finding it and building it. What else would you add from an innovation standpoint, Nick?

Nick Pell (44:30):

Thanks. I mean, look, we’re constantly trying to innovate new deliveries for our customers in terms of just thinking from the ESG front, we’re delivering all our, almost 15 million feet will be lead-certified and delivering LED lighting to allow our customer customers to meet their own design, it’s the pressures they’re under to adhere to ESG standards. We have a very ambitious, probably the largest solar installation program going across the country right now. We have a lot of rooftops out there as I mentioned earlier. So, just trying to take advantage of that, make a difference, add some value, save some money for our customers, and hopefully change the world a little bit, too. And so, that’s just one area, but all the technology stuff that Brandon mentioned, these are fast-moving, emerging companies that we’re trying to stay ahead of. Being plugged into the Blackstone ecosystem, and their growth business, life science business, private equity business just allows us to stay front and center in all these things for our customers as well.

Scott Luton (45:40):

Outstanding, because they’re demanding it right, as you’re alluding to, and investors are demanding it, and it does make the world for a better place, so I appreciate that, Nick. Fascinating. I feel like I’ve just put my finger on the pulse, and you’re just scraping the top of the iceberg here, Matt, with everything that’s going on in the industrial rental space, right?

Matt McGregor (46:05):

That’s right. There’s a ton of innovation going on both inside and outside the box. And one thing we didn’t touch on was it’s interesting, with COVID changing the work-at-home environment, and then we’ve touched on labor, you’re seeing industrial companies, and I’m sure Link is included in this, changing the way office is structured. I’d say my whole career, industrial office was just kind of very cookie cutter. There wasn’t a lot of bells and whistles to it. And now, it’s being created in very innovative ways, with bringing in natural light, and relight, and open office, and shared workspace, less private office, more collaborative workspaces, plug and play workspaces, so people can have a work-life balance, and work from home, and plug into offices as opposed to the old-school, dense office buildout. So, we’re seeing that change inside the box as well.

Scott Luton (47:02):

So, it’s just gotten harder and harder. So, folks, if you’re listening, you want to be a part of this industry, remember, it’s not for the faint of heart, the get stuff done, as Nick put it earlier, but it is just fascinating. So, I want to do this here as we come around the final stretch here, I want to make sure our listeners know how to connect with Link Logistics and both of y’all. And, Nick, I wanna start with you. By the way, if folks are visiting New York, put you on spot here, what’s one restaurant that they got, if they can get in, they got to get in and eat something good?

Nick Pell (47:37):

So, there are so many great restaurants. It depends on your palate, but what my favorite fine dining restaurant, I think, would be Maria on Central Park South. And then, there’s a more casual version of it called Osteria Morini in Soho, which is also equally good, but more casual and accessible. And so, I highly recommend those if you like Italian food. And if you don’t, I really don’t understand why, but I guess there’s something going on if you don’t like Italian food.

Scott Luton (48:08):

Nick, I love it, and thank you for letting me put you on a spot there. So, there are some great places to eat in New York city. But how can folks connect with you and Link?

Nick Pell (48:16):

So, I think the easiest way is probably just on our website, linklogistics.com. We’re all up there and our regional contacts are all available. We’re both on LinkedIn as well, so we’re available there, and we’re active posters as a company, and both of us are on LinkedIn as well.

Scott Luton (48:37):

Just that easy. And Brandon, I’ll give you a chance, I got to ask you a question. I didn’t close-loop with you on baseball. What position did you play, Brandon?

Brandon Page (48:46):

I was a pitcher. Yeah. I played at the University of Utah all four years and have the scar from the surgery to prove it.

Scott Luton (48:54):

What was your best pitch?

Brandon Page (48:56):

It was a good run. Slider was by far my out pitch, was a plus pitch, for sure, also probably helped lead to the arm surgery.

Scott Luton (49:06):

So, Brandon, we’re going to invite you back, and maybe Nick, too, we do a show every once in a while called Supply Chain Nerds Talk Sports, and it’s all sports, whether it’s baseball, football, or whatever. I bet you’ve got some stories there, but regardless, Brandon, same place, find you on social and at the link webpage, right?

Brandon Page (49:24):

Yeah, through LinkedIn and through linklogistics.com is the best way to get hold of us.

Scott Luton (49:28):

Perfect. Great. Well, I very much appreciate y’all taking time out of your busy schedule. I can’t imagine what the rest of your day looks like based on some of what we heard here today, but we’ve been talking with Nick Pell, President and Chief Investment Officer with Link Logistics, and his colleague, Brandon Page, Executive Vice President and Head of Leasing. Thank you, Nick. Thank you, Brandon. We look forward to seeing you again soon.

Brandon Page (49:51):

Thank you. Appreciate it.

Nick Pell (49:53):

Thanks, Matt.

Matt McGregor (49:54):

Thanks, guys.

Scott Luton (49:56):

Matt, man. Holy cow. I just felt like I took a sneak peek into your world, and Nick’s and Brandon’s, and maybe my heart is very faint. Maybe it’s not for me. There’s a ton of stuff y’all have to work through to give global supply chain what they need from an infrastructure standpoint, huh?

Matt McGregor (50:14):

That’s right. It’s been crazy couple years and I think we’re in for a crazy couple more. I mean, as you know, supply chain has been the buzzword for the last couple years, and certainly, just is getting more and more complicated, but certainly fun. It’s fun to learn how to be innovative in it and find ways to improve it, and I think that’s what companies like Link and Colliers are doing.

Scott Luton (50:38):

Agreed, agreed. GSD, getting stuff done. Alright. So, let’s talk about this upcoming—so maybe the nice version. Let’s talk about this upcoming event that we’re going to be at. I’m looking forward to sitting down with a couple other business leaders at, let’s see here, the Colliers Logistics and Transportation Solutions Group Supply Chain Conference, right? May 11th through the 13th in beautiful Charleston, South Carolina. What is one thing you’re looking forward to, Matt?

Matt McGregor (51:06):

I would definitely say the networking and the speakers all around, understanding the dynamics of the supply chain moving forward, hitting on some of those geopolitical issues, and understanding how bringing manufacturing both onshore here in the US, in addition, nearshore in Mexico is impacting the industrial markets and supply chain. And I would say those are the biggest topics we’ll be hitting there. It’ll be a great conference.

Scott Luton (51:37):

It will be, with great food, a great backdrop, and great networking, and a lot to be learned. So, big thanks to our friends at Colliers. Hey, big, thanks to you today, Matt McGregor, for taking time out of your schedule as we interviewed Nick and Brandon. How can folks connect with you, Matt?

Matt McGregor (51:52):

Yeah, absolutely. You can find me on LinkedIn, Matt McGregor, or my team’s website, Industrial Advisors. That’s also a podcast. You can find Industrial Advisors on anywhere you podcast, Apple Podcast, Spotify, Google Podcasts, and all others.

Scott Luton (52:07):

Wonderful. Not to be missed. Well, Matt, a pleasure to collaborate with you. We’re looking forward to our upcoming episodes. Hey, listeners, hopefully, you enjoyed today’s episode and learned a ton as much as I did. Big thanks to our friends at Link Logistics. Again, Nick Pell and Brandon Page. Big thanks to Matt McGregor and our friends at Colliers for bringing this show here to you, our listener. And, hey, listeners, wherever you are, hopefully, you got 17 pages of notes like I did from today’s conversation, but Scott Luton and the Supply Chain Now team challenging you to do good to give forward and to be the change. And with that said, we’ll see you next time right back here on Supply Chain Now. Thanks everybody.

Intro/Outro (52:45):

Thanks for being a part of our Supply Chain Now community. Check out all of our programming at supplychainnow.com, and make sure you subscribe to Supply Chain Now anywhere you listen to podcasts, and follow us on Facebook, LinkedIn, Twitter, and Instagram. See you next time on Supply Chain Now.