The industrial real estate industry market is rapidly evolving with the demand of consumers for faster delivery of products and with advanced technology in the logistics and retail industries. Due to the changing habits of today’s consumers and the rapid growth of e-commerce, there has been a big spike in the development of massive distribution centers in the US.
There has been an increase in demand for well-located “last-mile” fulfillment centers that are located near population centers by major e-commerce players and retailers for the purpose of meeting the precise needs of consumers for quicker product delivery at their doorstep. Before the product arrives on the doorstep of the consumer, the last mile is essentially the last leg of the product’ trip.
It is essential to understand that the new “retail model” requires industrial distribution centers that should be located near population centers. In addition, these centers should have high ceilings and be compatible with online purchases. It is essential to understand that the development of the modern distribution centers has increased rapidly in the last few years due to the rising demands of these centers by Amazon, Walmart and various other e-commerce leading companies.
The industrial real estate sector is the big winner
Due to the rising demands of the distribution centers by the leading e-commerce players, the landlords are enjoying record high rents and increasing property values. It is important to understand that the industrial vacancy is at an all-time low in the US. It has rapidly declined by 70 basis points from a year ago to an aggregate nationwide vacancy of about 5.3% in the fourth quarter of 2016.
There is no doubt that e-commerce is driving the demand of distribution centers in the US due to increased demand for inventory by the e-commerce players such as Amazon. For example, Amazon, which is one of the leading e-commerce players in the US, continues to broaden its product and service offering. It is estimated that it will require three times or more distribution centers.
Finding the right distribution center is challenging
In the last few decades, the biggest challenge faced by the e-commerce site is to locate distribution centers near the population pools. In order to deliver products quickly with lower logistics costs, it is beneficial for the e-commerce players to have distribution centers near highly populated cities. Major developers in the US are involved in the construction of distribution centers that are not more than six to nine miles away from the major metro cities, as per the recent report published in a leading real estate journal.
Finding such centers has significantly increased the same-day delivery services by major e-commerce players such as Amazon, Walmart, Instacart, Google Express, and others. Most of the major players require easily accessible warehouses in order to deliver products within the promised time frame.
Are logistic facilities, changing to meet these standards?
It is essential to understand that the logistics facilities are not a new concept in the US real estate market, but what is new is the state-of-the-art technology that is used for meeting the needs of the consumers. There were a large number of catalog houses where consumers would make an order and their order would be ordered in old buildings as they have their own trucks. This has been going on as part of the business. But consumers in the US are no longer using catalogs for making orders. They visit the online website and make an order while sitting in the comfort of their home or office with just a simple click.
It’s all about accuracy, speed, and customization
The e-commerce site has the unique ability to track what their online order is. Consumers are able to track their orders online and know where the orders are actually located in most cases immediately. Due to their wide distribution network and strong logistics support, big players like Amazon can deliver it to you in some cases within hours. It has captured a way to do it faster, cheaper and more customized solutions based on the needs and preferences of the customers. How’s that possible? It’s technology. As much as they’re a logistics company, they’re a technology company.”
E-commerce is big business
It is essential to understand that consumers alone in 2016 bought about $400 billion in goods from different online portals. Moreover, the sales of major e-commerce have been increasing rapidly by about 15% per year. In addition, many experts believe that the e-commerce business in the US will only continue to grow and the business is just in its infancy stage. The e-commerce business has driven the business of the industrial real estate sector in a big way.
This update is provided to you by Park West Capital. With over a decade experience specializing in real estate financing and commercial lending opportunities. We have assisted numerous clients with growing their real estate portfolios and providing the funding resources. We firmly believe in accountability, excellence, integrity, entrepreneurship, and teamwork. Contact us at 800-969-4901 to learn more about how we can professionally assist you with your investing needs or fill out our hard money loan application and we’ll get in touch with you.