The Peninsula Industrial Pros

Your Commercial Real Estate Source in the San Francisco Bay Area

Tide of E-Commerce Lifts All Industrial

By Paul Bubny

E-commerce is already dominating the conversation when it comes to industrial real estate development. However, a white paper from Prologis makes it clear that we ain’t seen nothin’ yet.

“Forecasters, such as Goldman Sachs, anticipate that online sales will continue to rise at double-digit rates for the foreseeable future,” according to the Prologis report, titled “Inside the Global Supply Chain: E-commerce and a New Demand for Logistics Real Estate.” McKinsey andForrester Research, among others, have estimated that the online share of the retail sector “will rise to the mid-teens during the coming decade, up from less than 10% today,” the report states. “We see several themes emerging that will shape e-commerce and logistics real estate for the foreseeable future.”

One of these themes is organization. “As aggregate e-commerce demand comprises the constituent e-commerce companies, considering decision-making of individual customers provides a roadmap for the future,” according to the Prologis report. “High industry growth suggests to us that distributors will increasingly favor facilities proximate to their end customers.”

We’re also likely to see a wave of industry growth and cannibalization. “High top-line industry growth is a positive, but we also observe that e-commerce customers use the space differently and more intensively; they need more space as traditional retail activities are consolidated into logistics facilities,” the report states. To cite one metric, the report notes that while a brick-and-mortar retailer with $1 billion in annual sales would require about 300,000 to 350,000 square feet of logistics space, the online merchant with similar sales volume needs upwards of one million square feet.

There’s also the specter of obsolescence. “In our view, most e-commerce customers adapt to traditional logistics facilities, rather than require extensive specialized configurations and improvements,” according to Prologis. “On the margin, we see a greater emphasis on high-quality space, including superior infill locations, higher ceiling heights and lower coverage ratios (in Europe and the US)—collectively, themes we also see among our non-e-commerce customers.”

Already, says CBRE Group, demand from both traditional and online retailers is putting a strain on the supply of available class A logistics product. Developers have been aggressive in lining up build-to-suit deals and breaking ground on approximately 45.7 million square feet of speculative development. However, given the 30 million square feet of active e-commerce requirements, and with demand likely to remain strong over the next few years, CBRE doesn’t see supply catching up with demand anytime soon.

Read entire GlobeSt article here.

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This entry was posted on July 21, 2014 by in Industrial, Market Updates, National and tagged , , , .
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