Ecommerce Impact on the Industrial Real Estate Sector

Ecommerce Impact on the Industrial Real Estate Sector

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The rise of e-commerce in the last decade has put the spotlight on the industrial sector and the need for more efficient industrial facilities located close to urban centers. With people shopping online more than ever, the focus on fast turnaround and last-mile delivery have built a frenzy of development of last-mile fulfillment centers in Houston and other major markets. Houston currently sports 16 million square feet of industrial product under construction. So, how do we keep these properties from becoming obsolete by technological advances like drone technology and automatic delivery systems?

The birth of smart warehouses

The next chapter in worldwide last-mile delivery is making warehouses “smart”. China is the biggest e-commerce market in the world, and its online retailers are starting to use smart technology to gain a competitive advantage. The nation’s largest e-commerce companies like JD.com and Alibaba are investing in warehouses that rely on tech improvements to quicken the delivery time, including robotic conveyor belt systems, high ceilings, and air conditioning.

While in Australia, websites like Cartoncloud.com offer transport and warehouse management systems that put everything, from accounting tasks and admin processes to route optimization and invoice creation into one easy-to-use software solution. Such smart technologies and warehouses are being erected at a time when warehouse development is exploding in China. Industrial developers added 4.6 million square feet of warehouses across the country in 2017, a 52% increase from the prior year, according to CBRE.

 

Going vertical

The e-commerce supply chain has a requirement of as much to three times more warehouse and logistics space than a traditional brick-and-mortar supply chain. This increased need for operational square feet coupled with fast delivery expectations and developments in urban centers has made some developers explore vertical warehouse design to increase the efficiency of the building footprint.

Although the price of land in Texas is usually low, denser U.S and multinational markets have successfully implemented multistory warehouses as a solution. As the need for more urban DC – distribution centers – increases, vertical warehouses could become way more common even when land is cheap.

In 2005, the average clear height for an industrial distribution facility was 28 feet. We now see clear heights reach 36 feet and above to accommodate taller racking for increased storage and capacity of products. As industrial buildings become more advanced with automatic storage retrieval systems, clear heights will continue to go higher, and aisle width could decrease, causing denser racking and storage capacity.

The evolution of distribution centers

Warehouses and distribution centers have changed over recent years. Today's robust, e-commerce driven economy has made a significant shift in how logistics real estate is seen. Same-day delivery is turning into a same-hour delivery in some places, and customers are insisting on a wider selection and availability of goods. As a consequence, selecting a property and market are now business-critical decisions that favor high-quality space in prime locations near urban centers.

E-commerce comprises about 20% of new leasing for DC, and one reason for this growth is that online retailers require approximately 1.2 million square feet per billion dollars of online sales on average. Developing flexible, robust, and highly responsive final-mile networks capable of continuously meeting delivery obligations in an ever-tightening time has become an essential component of doing business.

The advancement of technology, omnichannel purchasing, brick-and-mortar experiential retail, and the requirement to coordinate supply chain functions will continue to have widespread effects on the demand for logistics real estate. While supply chain strategies will remain as varied as the retailers who implement them, it's clear that e-commerce is becoming a revenue driver for real estate investors.

By Amelia Atkins