E-Commerce Online Sales Impact U. S. Warehouse MarketAre U.S. warehouses and distribution centers ready to meet e-commerce omnichannel fulfillment demands?
U.S. Warehouse Space Today
E-commerce online shopping is having a significant impact on the industrial real estate market across the United States. Although online sales are less than a tenth of overall retail sales, according to the U.S. Census Bureau, e-commerce retail revenue increased at four times the pace of total retail sales. Big box retailer Walmart reported that they anticipate e-commerce sales to increase at a pace of 50% year over year.
Recent commercial real estate industry reports indicate that U.S.-based warehouses and distribution centers are facing increasingly tight market conditions. According to CBRE, availability in the first quarter of 2018 declined for the 31st consecutive quarter. An examination of this on an annual basis shows that the availability rate has dropped 20 base points per year. Largely due to the increase in e-commerce activity, the demand for United States-based warehouse and DC facilities has continued to increase steadily.
Satisfying consumers with fast delivery comes a cost. Yesterday’s supply chain was not engineered to satisfy the fast-paced immediate desire of consumers. Fast forward to today. With consumers pushing to be able to buy anything from anywhere and have the goods in their hands immediately, the issue of warehouse real estate location needs more thought. A review of U.S. warehouse inventory provides some insight into the challenges that the nation faces in meeting consumer expectations.
The Impact of E-Commerce Omnichannel Retail
Real estate industry reports by experts CBRE and Prologis indicate that warehouses are changing to meet pressing needs of e-commerce fulfillment. In years gone by, warehouses and distribution centers were situated away from population centers in areas where costs for land, taxes and labor were lower. These warehouses tended to have lower roofs, fewer dock doors and smaller parking lots, suitable for smaller workforce operations.
Here are some other insights from the CBRE report “Old Storage Warehouse Modernization in Early Stages”:
- U.S. markets that have the newest warehouses tend to have a large amount of land that can still be developed and are near major population centers
- U.S. markets with the oldest warehouses are most likely to serve heavy industrial and shipping centers
Land shortages in some areas has resulted in use of brownfield sites and closed shopping malls. With land restrictions increasing pressure in certain locations, some companies are looking to Asia for inspiration. A three story nearly 600,000 square foot fulfillment center is under construction in Seattle. The fulfillment center will include truck ramps that lead to second floor loading docks and forklift accessible freight elevators for lighter-scale warehouse operations on the third floor.
Warehouse and Distribution Center LOCATION, LOCATION, LOCATION
Whereas years ago, the location of shopping malls and brick and mortar retail stores was essential to the success of retail, now warehouses and distribution centers must be located near population centers to ensure rapid last mile delivery. This reduces time and transportation costs, vital to keeping home delivery costs low for consumers. To do this in mature markets, omnichannel retailers are searching for “infill locations”, vacant or underutilized parcels of land within or immediately adjacent to urban areas.
Bigger, More Technologically Advanced Warehouses in 2018
Because of the incredibly fast pace of operations, wide variety of goods and SKU proliferation and other factors, the size of warehouses and distribution centers has increased significantly. Warehouses today are far more technologically advanced than those of even ten years ago. The space is needed not only to store the wide range of inventory but also the material handling equipment and related technology that power the fast-paced operation.
- Several Amazon warehouses have over a million square feet of space
- Nike’s Memphis 24/7 distribution center has 2.8 million square feet of space and 33 miles of conveyor belt under a single roof
The continual growth of online shopping is fueling the demand for warehouse and DC space and major changes across the supply chain. As many U.S. warehouses were constructed before the year 2000, the facilities are smaller and inadequate. Location remains critical for warehouses and distribution centers in order to meet the need for same day delivery to consumers.
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