Disruption in the food manufacturing and supply chain remains vast and varied. Continued corporate consolidation, ingredient and shipping inflation, compressed margins, and food-safety continue to shape industrial occupancy. Global Food Properties considers the following trends most revealing of how industrial occupancy at the plant level evolved in 2017.
In an era of compressed margins, efficiency and throughput remain the primary antidotes. The property consequences are two-fold. First, with scale and volume paramount, building footprints have increased, with persistent demand for second-generation facilities exceeding 250,000 square feet. A corollary to increased square footage is a large site, fully entitled, and capable of sustaining a doubling of the plant envelope. Second, in most sectors, a linear configuration is most desirable, able to accommodate production runs exceeding 600’. Newer facilities with linear configurations trade considerably above “market,” and close quickly, particularly in the baking and dry mixing sector.
Site Selection Drivers
In the 1980’s it was “right to work,” in the millennial years it was human resources. However, in 2017, it’s food-safety. Pre-existing, second-generation facilities are increasingly screened for food-safety risk, particularly if the plant processed raw ingredients to a refrigerated, RTE, or frozen end product. And the sanitary screening goes well-beyond public product recalls tracing to the property; third-party audit history and compliance records are scrutinized, as is the facility and infrastructure itself. The increased rigors of the FSMA and FSIS no doubt underlie this shift, which we believe is the most forceful and long-lasting change to the transactional landscape of food facilities.
Increasing Appeal of Alternative Assets
Correlating directly with pre-existing plant food-safety concerns, alternative assets are getting sustained attention. Most common would be the conversion of food warehouses to production plants, where a large footprint, a refrigerated infrastructure, and interstate highway access provide speed-to-market advantages over new construction.
Second, industrial spec buildings, privately or publicly owned, and often erected without poured floors, are increasingly desirable. These developments present challenges, however, as facilities designed for warehousing often have no expansion, lightly constructed walls and roofs, less rigorous infrastructure and utilities, and possible zoning issues.
Lastly, Global Food Properties noticed a spike in 2017 for non-food manufacturing plants that had an infrastructure conducive to food manufacturing. A perfect example would be a Global 100 bakery manufacturing client describing a vacant computer manufacturing plant as “the food plant of the future.” Why? Redundant power, expandable design, heavy concrete construction, load bearing roofs, a controlled environment, and extensive site security were pre-existing, and most importantly, the facility could harbor no pathogens or present any credible food-safety concerns.
Most industrial brokerage firms experienced a pre-election slow down, whatever the cause; and most brokerages expected whoever the winner, velocity and demand would return come January. In 2017, this did not happen in food manufacturing. Warehouses remain hot as e-commerce roils supply chains, but food plant absorption - outside the meal delivery kit space - remains sporadic. Certainly there is no easy nor quick explanation, but this likely includes many factors mentioned above, to wit, consolidation and redundancy, fast-moving and unpredictable consumer behavior, compressed margins, and evolving and unpredictable food-safety standards making investment risky
Global Food Properties remains a thought-leader in food facility brokerage, and we see 2017 as something of a transition year, particularly as food-safety clouds occupancy decisions. We expect all of the forces discussed above will accelerate further in 2018, creating another dynamic year for special-purpose regulated assets.