Real estate and the evolution of e-commerce

Online retailing has grown an average of 18 percent globally over the last three years, and real estate developers are scrambling to accommodate ever-changing consumer demands (NAIOP). The various real estate requirements for e-commerce companies like Amazon can be thought of like a series of Russian nesting dolls (Site Selection). They include:

  • Mega-big boxes landing well outside major metropolitan areas;
  • Mid-sized distribution/fulfillment centers seeking to locate closer to population centers;
  • Medium to large sortation centers popping up within major urban centers to accelerate delivery and mitigate risks; and
  • Small depots emerging seemingly on a corner near you, where the last mile really begins.

Fulfillment centers are huge buildings (averaging 1 million square feet) that house large and small products, but finding enough flat, developable land near large population centers is challenging. As explained by NAIOP, these facilities require:

…extensive truck and trailer parking and dock facilities, high roofs (allowing for multiple mezzanines), large employee parking lots and expanded facility power systems with backup generators to allow optimum performance at peak times…finding sites large enough to accommodate these types of facilities, circulation patterns, employee parking, highway access and proximity to populations can result in higher land costs.

According to Cushman and Wakefield, these technologically advanced fulfillment centers can cost three times more than traditional warehouses.

Industry experts expect more online retailers to shift to mid-size (300,000-600,000 square feet) regional fulfillment centers. These facilities require less space and can more feasibly locate in redeveloped properties.

In urban locations, the typical facility is a smaller sort center (200,000-600,000 square feet) focused on resorting pallets and sending goods to another sort center or directly to the customer.

The next wave of facility (at least for Amazon) is even smaller “depots” that can accommodate same-day delivery, currently existing in only 10 large markets. And with advancing technology, the next space premiumsmay not even be in the form of land (Fortune).

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