E-fulfillment requires three times the logistics space used by brick-and-mortar retailers. Why? Parcels in- stead of pallets are used, there are higher inventory
turn levels and a broader variety of product are some of the
reasons, according to Internet Retailer and ProLogis.
For the CRE industry and its tenants, this is a problem.
Fortunately, at least for the former, it is not as big a problem as it might be if this were any other asset class. Demand
drivers—not to mention the need for speed—remain so
strong for the industrial sector that it trumps the difficulty
securing entitled land and rising construction costs.
“Occupancy costs are not the biggest expense,” says
Chris Macke, managing director of research and strategy
with American Realty Advisors. “Time, not cents, matters
more to tenants trying to deliver instant consumer gratifi-
cation.” For these types of companies, “timely delivery
matters much more than” the cost of rent.”
It’s little wonder, then, that demand across all parts of
the supply chain—consumption, inventory and produc-
tion—grew in the first quarter. Nationwide, indus-
trial vacancy stands at 7.3%, the lowest since first-
quarter 2001, as per CBRE. First-quarter 2018
construction totaled 35 million square feet,
with absorption positive for the 32nd straight
quarter, at 41 million square feet.
The coastal markets and Dallas-Fort
Worth have led the charge. Rising import
levels, the expanded capacity of the
Panama Canal and the use of larger cargo
ships also have driven up demand for
industrial space around the US seaports. It’s those factors, combined with
development constraints, that have
prompted warehouse designs to go
“upward instead of outward,” and are inspiring
new ways to accommodate tenants’ needs for direct
consumer delivery, refrigeration, new development and
sustainability, according to a recent report by Yardi.
16 REAL ESTATE FORUM JULY/AUGUST 2018