According to the most recent report from Digital Commerce 360, online sales surged at the start of the pandemic resulting in an increase of $60.42 billion (30.1%) in the first six months of 2020 over 2019. This growth is starting to level off as many stores begin to open; however, the year to year growth decreased from 76% in June to 55% in July. This growth is expected to remain robust as more companies adopt a D2C (Direct to Consumer) model in their service offering.
The increase in consumer e-commerce spending has precipitated a surge in demand for warehouses and distribution facilities across the US and abroad. Hamid Moghadam, Chairman of the board and CEO of Prologis, the largest owner and operator of industrial real estate in the US and Amazon’s primary Landlord, estimates that e-commerce represents 40% of their business. Prologis estimates that e-commerce customers need 1.2 million square feet of distribution space per $1 billion in company sales, which is three times the amount of space required by traditional distribution models. Some industry leaders are estimating the need for an additional one billion square feet of distribution space in the next five years to accommodate e-commerce growth. In the second quarter this year, 78.2 million square feet of distribution space was delivered.
The most desirable inventory for last-mile players, which includes proximity to major metropolitan areas with adequate ingress/egress that can accommodate fleet vehicle parking, is limited and was before COVID. That said, Amazon is repurposing big-box retail locations, something landlords would never have considered until the pandemic.
Emerging technologies reshaping warehousing and distribution facilities requirements:
While the pandemic has certainly accelerated e-commerce spending, it exposed significant supply chain disruptions resulting in a rise in product storage and a move to digital supply networks (DSNs) where innovative technologies are digitizing and connecting traditionally siloed processes. According to a recent report by Gartner, the top 8 trends in supply chain technology in 2020 are:
Hyper-Automation
Digital Supply Chain Twin
Continuous Intelligence
Supply Chain Governance and Security
Edge Computing and Analytics
Artificial intelligence
5G Networks
Immersive Experience
As companies adopt, refine, and develop these technologies and reimagine their operations, they are seeking to revolutionize industrial space, which is changing the way they evaluate and acquire industrial space. As build-out costs increase, Landlords will need to share in these costs by increasing tenant improvement allowances.
Real estate investors and operators have a unique opportunity to embrace emerging technologies in supply chain/logistics reshaping the industrial market.
