Retailers Focus on Large Distribution Centers, Small Urban Warehouses for Fast Delivery

As third quarter fundamentals continue to show improvement in the industrial sector, retailers are honing their distribution center strategy to meet current e-commerce demands.

Fundamentals for warehouse space have improved steadily over the past five years. The availability rate for industrial properties declined to 9.6 percent nationally in the third quarter, according to a report from commercial real estate services firm CBRE. Net demand for industrial space is on pace to exceed 200 million sq. ft. this year, and the vacancy rate dropped to 7.3 percent, almost a full percentage point down from the third quarter of 2014, according to report from Cushman & Wakefield. Demand for class-A logistics product will continue to fuel the rapid increase in construction through the rest of the year and into 2016, the Cushman report predicts.

Dwight Hotchkiss, president of brokerage services and the national director of industrial with real estate services firm Colliers, says warehouse demand from retailers has been one of the top reasons for the improved industrial picture. Increased online purchasing, driven by rising smartphone and tablet use, has corresponded with retailer demand for more distribution center space.

However, in the years immediately following the recession, retailers trying desperately to follow Amazon’s example engaged in a jumble of distribution center activity. Same-day delivery of products became the goal, but many companies weren’t sure how to achieve it, or whether they had the capital to invest in the infrastructure necessary to get products out that quickly. Omni-channeling entered the retail and industrial lexicon, as retail chains tried various storage use combinations to get products to customers.

Today, two strategies have emerged, Hotchkiss says: A focus on expanding the “first mile” of distribution, such as building massive distribution centers with advanced robotics and RFID technology, to the “last mile,” where e-commerce retailers are leasing up older or smaller warehouses near urban centers to shorten delivery routes.

“We have an expectation in this digital age of more instantaneous delivery,” he says. “A lot more people today are shopping this way. It takes away from the brick-and-mortar storefront and makes more demands on the warehouse space.”

Read entire article here in National Real Estate investor.

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