From a business perspective, the pandemic has been a learning process for everyone. We have seen changes in consumer habits, travel, dining, and a plethora of other industries. However, one consistent performer since the start of the global pandemic has been e-commerce. More and more people have changed behaviors to shop from the comfort of their own homes.
Consumer habits have led to ample opportunities in the distribution and fulfillment space as companies look to get products to consumers as quickly and efficiently as possible. This increased demand for e-commerce purchases, coupled with the pressure to deliver these purchases rapidly, has led to a distribution and fulfillment center market that is poised to thrive in the coming years.
Micro fulfillment centers
More recently, micro fulfillment centers are also being developed in urban areas to better serve the ‘last mile’ of delivery. This industrial real estate sector offers a more convenient way to fulfill orders for products that need less handling. Unlike traditional fulfillment hubs, micro centers are not located in remote areas or on the outskirts of cities but are relatively small enough to be situated within urban areas and provide easy access to consumers who live there. [1]
However, this industry still has room to grow and adapt. Recall the toilet paper shortage from the early days of COVID-19: Many anticipate events like these will lead to an overall change in the safety stock standards to decrease the likelihood of selling out entirely. Consumers also want these items faster and faster. It’s projected that “by 2023, same-day delivery will be the norm for most e-commerce purchases.” [2]
Research shows that more and more people seek fast and efficient home delivery options instead of brick-and-mortar stores. Over half of high-income earners and 70% of millennials prefer to shop online. This trend is only magnified in urban areas where the increased demand for same-day delivery is at the forefront of major urban centers. With all this insistence for quicker and more efficient deliveries, there is room for this space to grow over the coming years.
“The pandemic and shelter-in-place policies that ensued have accelerated both the growth and adoption rates of e-commerce. According to Digital Commerce 360, sales hit $602 billion in the U.S. at the end of 2019. JLL expects it to grow as much as 20% in 2020 and projects that sales could hit $1.5 trillion by 2025.” [3]
Both distribution and fulfillment centers have continued to thrive in a post-pandemic world as construction is set to fully resume this year. The growth in development within this space and hyper-local concentration is focused on solving for the “last mile” delivery. Some of this real estate is coming from obsolete retail spaces repurposed for distribution and fulfillment. They are evolving with the consumer. “While new product is under construction, it’s nearly impossible to find a large [250,000 square feet+] quality building available between Washington, D.C., and Savanah.” [4] The competition in this market is fierce as companies deliver more and more products the same day as the purchase.
Your opportunity
Even before COVID-19, we believed in a robust industrial real estate market performance. Our perspective is that this sector will be in a greater position to succeed in a post-pandemic world.
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[1] (Swisslog, 2021, SupplyChain 247)
[2] (Patel, 2021, Deloitte)
[2] (Meyer, Johnson, 2020, NAIOP)
[3] (Thuermer, 2021, Logistics Management)