Unlocking the Power of Technological Retrofitting: A Guide to Maximizing ROI on Your Commercial Real Estate

Introduction

In the ever-evolving commercial real estate landscape, one improvement category stands out for its potential to revolutionize your investment: Technological Retrofitting. This process involves the integration of advanced automation and robotics into your industrial warehouse. This move can attract tech-savvy tenants or significantly enhance operational efficiency if you use the space. The cost of such retrofitting can vary widely, but the potential for a high net profit, especially for warehouses catering to e-commerce, makes it an enticing proposition.

Key Reasons to Consider Upgrading

Technological retrofitting offers a host of benefits:

• Efficiency: Automation can streamline operations, reducing labor costs and increasing productivity.
• Attractiveness to Tenants: Tech-driven businesses are on the rise, and a modernized warehouse can be a significant draw.
• Scalability: Automated systems can easily be scaled up or down to meet changing business needs.
• Competitive Edge: In a competitive market, having a technologically advanced warehouse can set you apart.

Examples

• Amazon, San Bernardino – Amazon invested $1.8 billion in a new, 2.6 million square foot warehouse on its 100-acre site in San Bernardino, California, with several automated technologies. These include robotic pickers, conveyors, and sorters. It is the first Amazon warehouse in California to use mechanical pickers to pick items from shelves and place them on conveyors for shipping. The warehouse also features various other automated technologies, such as a conveyor system that transports items between different areas of the warehouse and a voice-activated picking system that allows workers to pick items by voice. The warehouse is expected to create 1,500 new jobs and process up to 1 million daily inventory units.
• Skechers, Anaheim – Skechers invested $100 million in a new, 1.2 million square foot warehouse on its 50-acre Anaheim, California site that uses various automated technologies to improve efficiency. These include a robotic picking system, a conveyor system, and a voice-activated picking system. The warehouse is expected to increase Skechers’ shipping capacity by 50%.
• Tesla’s Fremont factory – Tesla has invested heavily in automation at its  5.3 million square foot Fremont factory in California. Located on a 500-acre site, Tesla’s largest factory uses a variety of robotic systems to assemble cars, including an automated paint shop and body shop. This automation has helped Tesla to increase production rates and reduce costs.

These are just a few examples of how California warehouses use technological retrofitting to improve efficiency and productivity. As the demand for e-commerce continues to grow, we can expect to see more and more warehouses adopting these technologies.

Incentives

California offers several incentives for investors undertaking technological retrofitting, including:

1. Job Credits: California offers job credits for businesses that create new jobs, which can offset the cost of retrofitting.
2. Energy Efficiency Incentives: Technological retrofitting can often lead to energy savings, and California offers incentives for energy-efficient upgrades.
3. Research and Development Tax Credits: If your retrofitting project involves innovative technology, you may qualify for R&D tax credits.

How to Get Started

Consider the following as you begin to explore what the retrofitting process will look like for your facility:

• Does your facility (and its technology) perform as it should regarding space utilization, hold costs, productivity, etc.?   
• How productive is your picking process? You can analyze your productivity by looking at the ratio of performance to the desired result. For example, examine the number of hours worked with regard to the number of items picked to gain insight into the performance of both the picker and picking system. 
• Is your Warehouse Management System (WMS) and other software up-to-date and in line with current industry trends?
• Is your equipment modern enough that spare parts are available, or must these devices be updated? 
• Is there a good use case for Automated Guided Vehicles (AGVs)? 

To begin retrofitting, contact technology providers and consultants specializing in warehouse automation. They can provide a detailed analysis of your current operations and suggest suitable technologies. At the same time, consider consulting with a tax professional to understand the potential tax benefits of your project.

The Payback Period

A payback period is the time it takes for an investment to generate an amount of income or benefits equal to the cost of the investment. You can calculate this amount using the formula: 

Investment Payback Period = (Initial Invested Capital / Annual Cash Flow)

When technological retrofitting, the payback period can vary depending on the technologies implemented and the efficiency gains achieved. However, according to Supply Chain Dive, companies have seen paybacks within 1-2 years from warehouse automation.

Conclusion

Technological retrofitting offers a powerful way to maximize your commercial real estate investment. By leveraging automation and robotics, you can increase efficiency, attract tech-driven tenants, and gain a competitive edge. Attractive incentives available in California extend the potential for a quick payback period. Reach out to Evoque Lending’s Commercial Team today to explore loan options for your retrofitting project.