State of Industrial Real Estate: It’s crunch time

DCs are hot, especially for e-commerce fulfillment. But with so much demand, space availability is not necessarily ready to be had. Companies examining their supply chains need to be savvy about what they’re up against in terms of site selection—and realize that an ideal location will come at a higher cost.

Warehouses and distribution centers (DCs) has evolved immensely over recent years. The traditional warehouse was once an afterthought—a large building with the sole purpose of storing goods and tucked away in some remote location. However, today’s robust, e-commerce-driven economy has created a significant shift in how logistics real estate is viewed.

“Same-day delivery is evolving into same-hour delivery in some places, and consumers are insisting on a broader selection and availability of goods,” observes Dan Letter, a managing director of capital deployment for Prologis, a multinational logistics real estate investment trust. “As a result, selecting a market and a property are now business-critical decisions that favor high-quality space in prime locations near urban centers.”

Prologis, and other companies analyzing the industrial real estate market, find that e-commerce comprises about 20% of new leasing for DCs—that’s up from less than 5% just five years ago. “One reason for this growth,” reports Letter, “is that online retailers need approximately 1.2 million square feet (msf) per billion dollars of online sales on average, which is three times the distribution center space required for traditional brick-and-mortar retailers.”

In essence, retailers want supply chain strategies that keep store shelves stocked in a cost-effective manner and also meet the increased service demands of e-commerce.

“It’s become clear that neither one size—nor one supply chain strategy—fits all,” contends Jason Tolliver, head of logistics and industrial research for the Americas at Cushman & Wakefield. “It’s also clear that, in the paradigm of an online world, the interaction a retailer has with the customer often occurs on the retailer’s website and on the customer’s doorstep. So with that in mind, developing robust, flexible, and highly responsive final-mile networks capable of consistently meeting delivery commitments in an ever-tightening time window will remain an essential component of doing business.”

Bill Waxman, executive vice president of industrial and logistics at leasing and advisory firm CBRE concurs. “The phenomenon of next-day and same-day delivery has spurred companies to build out their last-mile networks,” he says. “This often takes the shape of a hub-and-spoke distribution network, such as a regional hub in, say, New Jersey that filters packages to a satellite DC in New York City, Long Island, Connecticut or elsewhere. Additional demand for distribution space comes from support companies, such as delivery services, 3PLs and packaging companies.”

But with so much demand, space availability is not necessarily ready to be had. Companies examining their supply chains need to be savvy about what they’re up against in terms of site selection. Indeed, location may be paramount, but it may come at a cost. 

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