By Ryan Salchert, Reporter – Commercial Real Estate and Urbanism, Dallas Business Journal
While tenant demand has grown for large industrial properties in North Texas, companies are also looking for opportunities to be closer to their workforce and customers. As a result, more and more are looking into last-mile logistics.
Dalfen Industrial, which operates its U.S. head office in Dallas, knows this product type well and has been operating in it even before that term was a common phrase.
“I think there’s a little bit of it a misnomer. People throw around the term “last mile” when it’s always been around, it just used to be called infill. It’s all we do and have been doing for 12 years,” said Sean Dalfen, president and chief investment officer at Dalfen Industrial.
Following the company’s purchase of a three-building, 1.03 million-square-foot industrial portfolio in north Fort Worth, Dalfen spoke with the Business Journal about his thoughts on the future of last-mile logistics and his company’s growth plans in North Texas.
How are you feeling about the North Texas industrial market right now?
It helps that I live here and that our U.S. head office is here. I’m seeing it first hand. Our feelings are that (Dallas-Fort Worth) is one of the best markets, prospect-wise, in the country. The reason is because you have all the right fundamentals. It’s already a core market and as we’ve seen with the pandemic, it’s attracting a lot more of what I call economic immigrants, people coming from other states who want to take advantage of the better business climate here, the lower cost of living and the lower taxes.
Your company has property in a number of states as well as in Canada. Where does DFW rank on the scale of importance for Dalfen?
We don’t really rank things in terms of scale of importance, it’s more about what densities we want in each market. I would say that the DFW market is one that we intend to grow significantly. I wouldn’t be surprised if within 18 months, our portfolio is at least double what it is today. We want to have upwards of 10 million square feet in 18 months.
Will that growth come mainly from investments or new development?
We’re currently completing a roughly 700,000-square-foot, two-building development in Mesquite and are buying more land for another park there. We completed a building late last year in McKinney that we have since sold. We’re actively building in this market and are constantly looking for new sites, so I would think that a lot of that growth is going to come from ground-up development. Why pay more than replacement when you can build to perfection and have a brand new building? That’s our take on it, and there’s the demand to justify it.
Obviously your company specializes in last mile, infill-type industrial. What do you like about this product type?
Infill is close to the workforce and close to the decision makers as opposed to a majority of industrial which is on the periphery of a market. We felt that we wanted to be closer to the consumer, the workforce and the people who are making the decisions because your building is more resilient during economic shifts. We have our own metrics internally that we use to determine what’s the best possible location within a given for market for last-mile distribution.
The key for last mile is if you’re not close to your consumer, you simply can’t profit in e-commerce. That’s all there is to it. If you’re not close to your workforce, then you’re going to have a hard time attracting that workforce and you’re not going to profit in e-commerce. Real estate is typically your smallest cost at anywhere between 3-6 percent. Your employment costs are anywhere between 15-25 percent and the biggest cost is your movement of goods. Your transport cost is anywhere from 45-75 percent. If you can reduce that transport time, if you can make that last mile shorter, that will be the bulk of your profit.
What has demand been like for last-mile logistics, especially in the age of COVID-19?
COVID has exponentially increased demand. It’s caused a forced adoption. We all knew that e-commerce was doing nothing but increasing in terms of its share of retail sales, but when you have something like a pandemic where you can’t even go to the stores, what do you think happens? Everyone orders online and we don’t revert back because it becomes more convenient. You get used to it. As a result of this, we’ve seen a massive increase in demand. It’s almost like an arms race. The large tenants want to secure the best spaces because they recognize that if they don’t secure these spaces, effectively, you’re not in business profitably.