By Bob Robers, Senior Director of Cushman & Wakefield’s Industrial and Global Supply Chain Solutions Groups
This article is the third in a series on how eCommerce is affecting the retail and industrial real estate markets.
“I want it now!” is the rallying cry of today’s consumers. Shipping of eCommerce goods used to be fast or free – but today’s consumers are demanding both fast and free. Even two-day delivery isn’t fast enough, with some major eCommerce retailers ramping up same-day delivery in major metros. To appease the instant gratification world we live in, eCommerce companies are being forced to carefully re-evaluate building and location requirements for their industrial and warehouse space.
Absorption has increased dramatically as retailers seek to build out their dedicated eCommerce supply chains. In fact, third quarter data from Cushman & Wakefield indicates that Atlanta has already broken the record for the most industrial net absorption ever recorded in a year with 16.3 million square feet of occupancy gains year-to-date.
This breaks the previous record annual total of 16.1 million square feet of absorption set in 2014. With the fourth quarter still remaining, the industrial market is expected to shatter 2014’s absorption record by millions of square feet.
With the boom in online shopping, eCommerce retailers are also driving change in third-party logistics warehouse requirements on both the return and original shipping sides. What most consumers don’t realize is that returns typically don’t go back to where they came from – in fact they usually go nowhere near the city of origin.
This can cause redundancy in real estate portfolios as companies have to double down on industrial facilities. Online-only retailers are being forced to re-evaluate their shipping and return processes, and some third-party logistics companies are now specializing in returns processing.
Because of the equipment and labor required to fulfill online orders, industrial building requirements are also changing. These facilities – taller, bigger and more expensive – require large, flexible sites to accommodate the increase in additional trailer and employee parking. Buildings have to be taller and frequently feature a 40-foot clear height to accommodate multiple levels of sortation equipment, which leads to warehouses that feature several mezzanines filled with workers, putting more people in warehouses than ever before.
For example, online fashion giant ASOS announced in August plans to open a fulfillment center south of Atlanta. The facility will total around 1 million square feet, but will employ more than 1,600 people.
A state-of-the-art building is simply not enough. Ecommerce retailers need the workforce to support growing demands, and this is causing industrial developers to be creative in how and where they approach development.
One creative solution is the conversion of functionally obsolete warehouses that are closer to both skilled labor as well as urban density to assist with last-mile delivery. In circumstances where a further out location is required due to the availability of land, some developers are seeking ways to make work more comfortable for employees once they are on property, like offering child care, green spaces for exercise and even potential cafeterias or food truck offerings.
As eCommerce continues to boom, the industrial market will have to continue to adapt to keep up with consumer demand. After all – “now” means now – and that consumer mindset isn’t going anywhere.