E-commerce is changing how supply chains work and, with it, changing the commercial real estate market. While it's reducing the need for retail space for many businesses, it is also causing fundamental shifts in industrial real estate demand. The locations and configurations of warehouses are changing as they transition from from stocking stores to fulfilling orders. Here are the top five ways that e-commerce is changing industrial real estate:
1. Fulfillment vs. Distribution
Once, retailers looked for industrial properties that were well suited to stocking their brick-and-mortar locations. As the retail channel gets less and less important, e-commerce companies are now looking for industrial properties that are able to handle fulfillment duties. Access to major delivery carriers and locations that allow low-cost high speed delivery to customer's homes and businesses are now major considerations. This allows businesses to look at centrally located commercial real estate on a more regional basis, opening up new markets.
2. Bigger Buildings
The fulfillment centers that drive e-commerce applications can be extremely large. As an example, Amazon.com is now deploying multiple fulfillment centers every year. They're typically larger than 1 million square feet. These new mega warehouses offer economies of scale for an e-commerce supply chain that directly serves millions of customers instead of scores or hundreds of stores.
3. Smaller Buildings (Getting Hyper-Local)
At the same time, the desire to offer same delivery to customers in urban areas is also pushing major e-commerce companies to find distribution space that is located close to major urban areas. A location that is an hour or two from a major city makes it possible for the company to spend the morning receiving orders and picking and pulling to fulfill them. They can then be delivered using small delivery vehicles throughout the nearby urban area. These facilities exist on a smaller scale than the mega-warehouses that provide national and regional fulfillment services.
4. Warehouse-in-the-Mall
At the same time, companies are starting to look at their retail locations as tools to serve their larger fulfillment infrastructure. While this isn't leading to smaller distribution centers, it is requiring them to invest in more advanced inventory management systems. As stores figure out how to best leverage their existing brick and mortar retail commercial real estate locations to support their e-commerce activities, it could slightly lower the degree to which they grow their industrial square footage.
5. New Industrial Configurations
Industrial commercial real estate properties that serve the e-commerce fulfillment industry have different needs from other types of industrial property. Like many newer buildings, they are typically built taller and with wider column spacing to accommodate new higher-efficiency racking systems. 30 to 36 foot clear heights and 50-by-50 bays are the new standard for these buildings.
At the same time, these buildings aren't just places to store and ship large quantities of product. They're also major workforce centers due to the labor intensive nature of fulfilling e-commerce orders. As such, they need to provide much higher parking ratios and much better access than traditional industrial commercial real estate properties.
Much like what is happening in the mall industry, where the shrinking demand for retail spaces is rapidly separating regional malls into successful trophies and soon-to-fail B and C properties, the e-commerce revolution is bifurcating industrial commercial real estate. Fulfillment and distribution centers are getting larger than ever while, at the same time, local delivery hubs are getting smaller and more customer-focused. This requires new ways of looking at industrial real estate properties and at your company's needs for the future.
