What Does the Impact Look Like?
The rise of e-commerce dominates retail headlines, but what is its impact on logistics real estate? Where are we in the growth cycle? What is the impact on actual leases and developments? How do new e-fulfilment requirements change the shape and functionality of buildings? To address these questions, we analyzed the industry’s growth, examined fulfilment strategies and studied the recent leasing trends of our e-commerce customers. The most notable themes include:
- Still in the Early Stages - Online shopping dates back more than two decades, and e-fulfilment has become a more visible share of the logistics industry for at least the last five years. But supply chains are only now starting to modernize to keep pace with dramatic volume growth. While it may seem like e-commerce is at the height of its growth cycle, it is still in the early stages of expansion.
- Wide Variety - Different e-commerce strategies and constant evolution drive a high variety of needs – spanning both new and older infill buildings, and there is no industry consensus on size or building features.
- High intensity of use - Our research reveals online retailers need approximately 1.2 million square feet per billion dollars of online sales on average, which is three times the distribution center space required for traditional brick-and-mortar retailers.
- Location, Location and Flexibility - Customers emphasize flexibility with requirements that are typically generic. Favored locations are adjacent to or within major population centers, driven by such trends as faster delivery times, transportation cost and retailer scale. Competition for last-mile facilities is particularly active, and we expect it to continue to grow.
- Omnichannel Experimentation - E-fulfilment models continue to evolve rapidly, as does the go-to-market strategy for retailers and their online offerings. Recently, brick-and-mortar retailers have expanded investments to execute“buy online and pick up in store” and “ship from store.” The flexibility required to deliver across multiple channels to multiple locations leads retailers to ask more of their supply chains.
What it Means for Investors
Industry demand will benefit as e-fulfilment expands. The recovery of occupancies and market rents occurred faster and in greater magnitude as a result. Looking forward, it’s critical to recognize that e-fulfilment models remain fluid and continue to evolve. A more durable strategy is likely to be the recent trend that favors locations within and adjacent to major population centers.
What it Means for Customers
Growing e-commerce demand leads to increased competition for availabilities. Vacancy rates have fallen to record-low levels in many markets. Forward-thinking businesses with thorough advance planning processes and the ability to act nimbly stand the best chance of meeting their real estate requirements at the best price and location.