Joe Dunlap is the founder of BlueJ Advisors, a supply chain consulting firm for owners, operators, and investors. Previously, he spent nearly a decade at CBRE, where he oversaw the company’s supply chain practice, and has decades of supply chain experience with Accenture, FORTNA, Dematic, and UPS. VEDP Vice President of Logistics Eric Jehu spoke with Dunlap about the warehousing ecosystem in Virginia and nationally, how to better incorporate supply chain issues into site selection, and the concept of warehousing as infrastructure.
Eric Jehu: This issue is about infrastructure in Virginia, and I regard warehousing as infrastructure. I’d like your reaction to that.
Joe Dunlap: Oftentimes when you see supply chains represented visually, you see this linear flow from raw materials to manufacturing to finished goods, then maybe to an origin port vessel that goes to a destination port, followed by deconsolidation or transload to a distribution center, and finally to a retail store or customer’s home, with lots of little trucking and transportation mechanisms in between. But when you look at that linear diagram and all the touch points across the broader supply chain, there’s some real estate component in every facet of the supply chain.
I look at warehousing as a buffer for production versus consumption. Warehouses sit between the manufacturing process and the demand for goods. If warehouse storage weren’t there, manufacturing processes would have to produce at a different rate
to fill order quantities so vessels or trucks could get goods to their final destination on time.
I think warehouses serve a vital function in the broader supply chain to buffer manufacturing, to feed manufacturing, to offload finished goods away from production so that production is either buffered at the manufacturing site or, more typically these days, closer to demand. We wouldn’t be able to service demand efficiently if we didn’t have warehouses in between.
Jehu: So the short answer to the question is yes.
Dunlap: Yes, America’s warehouses are vital infrastructure.
Jehu: Are we in Virginia in position in the U.S., broadly speaking? Do we have what we need to accomplish what the businesses and industries we’re trying to attract have set out, or do we have more work in front of us?
Dunlap: It’s not a static answer. The answer is probably no, considering where we are with the expected influx of investments coming back to the United States, in spite of a lot of vacancy right now. The U.S. has certainly made progress, but there are still a lot of gaps. I think I last read that since 2023, almost a billion square feet of new warehouses had come online that were delivered nationally, and about 80% of that was speculative construction.
That building boom has pushed up a lot of these warehouse vacancies at different rates in different markets. But nationally, by the end of 2024, it was almost 8%, and third-party logistics providers took up a significant portion. Every study I’ve seen, whether it’s CBRE, Cushman, or others, is showing that third-party logistics providers, by and large for the last 10 to 12 years, took the largest proportion of warehouse leases over that period. Especially during the pandemic, more and more companies were looking for short-term quick outlets of capacity.
Jehu: Certain parts of the country have higher vacancy rates. Others have lower vacancy rates. Virginia is one of the lower ones, but we do have a lot of capacity coming online in the near term. Are we in the right position?
Dunlap: It’s another variable answer, a supply-demand equation. Currently, demand’s not as strong as it once was. Otherwise, there would be lower vacancy in those markets you’re describing. Developers often wait for clear demand signals before they commit to the buildout. So how quickly can they ramp it up? They want to wait as long as possible until there’s a contract signed so that the investment is covered quickly by a leased building.
So are we ready? Do we have sites? Can we ramp up in time? There are some other interesting dynamics probably happening relative to building size. The number of million-square-footers built out over the last five years has been tremendous relative to the previous five years. Will we see that buildout going forward? Not as often, unless there’s a tenant in tow, ready to commit to that million-square-footer. I think we’re going to see more small facilities.
Jehu: What, in your view, would be the appropriate intersection of warehousing and commercial development and policy?
Dunlap: Are you familiar with the U.S. Department of Transportation’s FLOW program and that interchange of data across the value chain, which is part of enabling that long-range master planning?
Jehu: From what I understand, the FLOW program grew out of the COVID-19 pandemic and the pullback. Then the surge of goods through the country basically choked the infrastructure.
But at the same time, if you can see the wave coming and can prepare by spreading the impact out, you have to share the information. You need open communication. Everything has to mean the same to everybody. If we say “arriving,” it has to reference the same point in time at the same locations. Assuming you have continuity of data and communications, I completely agree that it gives you the best version of a forecasting vehicle that you could possibly come up with.
Dunlap: It’s got a long way to go, but it’s a start. Having industry-specific versions of FLOW to accommodate variations in how they want to share data is probably the next evolution of FLOW.
Jehu: Your past employer is a larger firm, and many of the industries we necessarily focus on in the traded sector space, because they go beyond state borders for their revenue, tend to be larger organizations. Warehousing and trucking are two industries where the small business operator is the dominant entity. Is there a natural misalignment or a missed opportunity where our focus is on the traded sector when one key piece of the infrastructure is largely met by independent warehousing operators?
Dunlap: One of the things that comes to mind is public policy for land use and pollution. Other regulatory impacts were largely written for large consumers — large users of industrial. Do you apply the same stringent policy to smaller mom-and-pops that run 50,000-sq.-ft. warehouses that may service larger supply chain components? Do they have to hit the same hurdles and regulatory requirements written to target big offenders? Part of me would say maybe there should be some easing of those burdens for smaller companies, such as tiered compliance systems or incentives.
Jehu: Are there opportunities, as the life of a manufacturing project is developing, to improve on what we do today in terms of considering the necessary components of goods movement in and out of a site? To have the appropriate parties at the table at the right time, which ultimately leads not just to better site selection, but better overall employment and career paths, and the right investment in the right infrastructure?
Dunlap: The way I think about it is that it’s the natural evolution of operation. A supply chain operation tends to be one of risk-mitigation, or risk-aversion, and ideally a crawl-walk-run approach to stage-gate CapEx investment. I don’t want to make my end-all, be-all investment in capital on Day One. I want my investment in capital to coincide with volume increases, as production increases, or distribution increases to keep my cost per unit at a predictable level.
One of the things that Legacy Investing does is take ownership of the capital investment for the equipment to help companies reduce their cost per unit and need for labor that may not offer the best wage rate in the community. Maybe they only need 200 or 300 people if I’m able to automate the building significantly. Most companies can’t afford automation themselves on Day One.
If I can incorporate fixed infrastructure automation into the building — because at that point, it’s as integral as lighting or HVAC — I can amortize that investment over a longer period, lowering the cost for that tenant. I’m able to give that tenant a year of free rent, and if they start shipping by the 12th month, guess what? They’re cash flow-positive from Day One because they’re paying the lease as they’re starting to generate revenue. I think it’s those kinds of creative solutions that Virginia is already looking at that will probably benefit bringing more automation and higher-wage positions to the state.
Jehu: And it changes in a couple of ways. One is the direct example of an automated warehouse space. Now you have maintenance technicians, electricians, and programmers who are more on the IT and systems side. And then there’s the expertise around the product being stored. That leads to QC and clean-room packaging and all those types of things.
Dunlap: These job types you described look more like wages for manufacturing jobs. So, what was a NIMBY reaction now becomes, “Yeah, bring that to my community because you’re bringing me better wages.” It’s now an attractive operation in my backyard for people who were traditionally material handlers and forklift drivers.
Jehu: You get career mobility, you get connectivity to other industries, and then you’re essentially establishing infrastructure for the manufacturer through warehouse distribution. Are there examples of where this is being done today, or where we’re taking steps from the policy perspective?
Dunlap: Siemens and Apple have opened sites that look and feel like an automotive ecosystem in the way the suppliers are vital to those locations. The suppliers may not have been there on Day One when these sites opened, but they need support to help bring those other suppliers closer to provide just-in-time replenishment on the line.
Jehu: I was looking to you for examples of where this behavior is active today.
Dunlap: I don’t think these were done like you were saying it should be done.
Jehu: But now it looks that way.
Dunlap: It looks that way in retrospect because somebody made the bet. The answer is probably no, they’re not doing what you’re describing. But in retrospect, it’s a self-fulfilling prophecy. They’ll probably work to get those suppliers located as close as possible.
Jehu: Take that industry specificity out of it for a second and look at Virginia — how Virginia stacks up from our investments in warehousing as infrastructure space, and then our industry sectors and the areas where we’re focused. If it’s not automotive and not electric vehicles, do all the same principles apply in the food and beverage space, the pharmaceutical space, or some of those other spaces?
Dunlap: I certainly see the size of investments the state has made in the last five years, more so than the previous five years, like deepening and widening the port for ultra-large container ships. That investment is going to draw a lot more volume through the port, which will inevitably benefit the state across regions and industries.
