In recent years, the rapid growth of ecommerce has revolutionized the retail industry. With consumers embracing online shopping more than ever before, the demand for warehousing space has skyrocketed. According to CBRE, E-commerce growth will continue to drive demand for industrial space in 2023. The exponential growth of ecommerce has been a significant driver behind this surge in warehousing demand. This blog explores the profound impact of the ecommerce boom on warehousing demand in the real estate sector. Through compelling statistics and insightful analysis, we delve into the key trends reshaping the warehousing landscape.
Table of Contents
- Ecommerce’s influence on warehousing demand
- Evolving warehouse design and size
- Advancing warehouse design through technology and flexibility
- Urban warehousing and last-mile delivery
- Opportunities for real estate developers and investors
- Conclusion
Ecommerce’s influence on warehousing demand
The surge in online shopping behavior has significantly impacted the demand for warehousing space. As consumers increasingly opt for the convenience of shopping from their homes, ecommerce companies are faced with the challenge of efficiently managing inventory and order fulfillment. This has led to a substantial increase in warehousing requirements.
The need for efficient inventory management is one of the primary drivers of warehousing demand in the ecommerce era. Ecommerce businesses must maintain large and diverse inventories to cater to customer demands. Warehouses serve as the central hubs for storing, organizing, and processing these inventories, ensuring timely order fulfillment.
The growth of Direct-to-Consumer (D2C) brands has also contributed to the surge in warehousing demand. With D2C brands bypassing traditional retail channels and selling directly to customers, they require dedicated warehousing space to store their products and fulfill orders efficiently.
Evolving warehouse design and size
To accommodate the increased inventory requirements of ecommerce companies, warehouses have undergone significant changes in design and size. With ecommerce players requiring efficient order fulfillment processes, the average size of warehouses has increased.
According to CBRE, the U.S. e-commerce market is projected to reach a staggering 26% of all retail sales by 2025. This exponential growth in online shopping necessitates the addition of a whopping 330 million square feet of warehousing and distribution space across the country. The first quarter of 2022 witnessed an unprecedented surge in warehouse construction activity, with a groundbreaking 546.1 million square feet of new warehousing and distribution space. This record-setting level of construction highlights the urgency to meet the rising warehousing demand driven by the flourishing e-commerce industry.
Traditionally, warehouses were designed to support bulk storage and distribution. However, the ecommerce boom has driven the need for larger warehouses that can handle high volumes of individual orders.
According to JLL, the rapid growth of e-commerce presents a remarkable opportunity. Their projections indicate that an additional $900 billion in sales by 2025 would create an overwhelming demand for more than 1 billion square feet of industrial real estate. This staggering statistic emphasizes the critical importance of expanding and optimizing logistics infrastructure to meet the anticipated surge in e-commerce transactions in the upcoming years.
Advancing warehouse design through technology and flexibility
Adoption of advanced technologies is another crucial aspect of evolving warehouse design. Ecommerce companies are investing in warehouse automation, robotics, and artificial intelligence to streamline operations, increase efficiency, and reduce labor costs. These technologies enable faster order processing, accurate inventory tracking, and improved overall warehouse productivity.
Warehouses now need to be flexible to support multi-channel fulfillment. As ecommerce companies expand their presence across various online marketplaces and channels, warehouses must adapt to handle multiple order types, such as B2C (Business-to-Consumer), B2B (Business-to-Business), and D2C. Flexibility in warehouse design and layout ensures optimal utilization of space and efficient order processing for different sales channels.
Urban warehousing and last-mile delivery
With the rise of ecommerce and the increasing demand for faster delivery times, urban warehousing has gained prominence. Proximity to densely populated areas and major transportation networks has become crucial for ecommerce companies to meet customer expectations.
Urban warehousing presents unique challenges and opportunities. Limited land availability in cities often requires creative solutions, such as vertical warehousing or repurposing existing buildings. Redevelopment of underutilized urban spaces, such as old factories or commercial buildings, into modern fulfillment centers has become a popular trend in meeting the warehousing demand.
The rapid increase in last-mile delivery expectations has given rise to the establishment of last-mile distribution hubs. These hubs are strategically located closer to the end consumers, allowing for faster and more efficient delivery. By positioning warehouses in urban areas, ecommerce companies can reduce transportation costs, improve delivery speed, and enhance the overall customer experience.
To overcome space constraints in urban environments, innovative approaches such as micro-fulfillment centers are gaining traction. These smaller-scale warehouses, located within or near urban areas, are designed to handle high-velocity, small-item fulfillment. They enable quick order processing and expedited delivery, meeting the demand for speedy ecommerce transactions.
Opportunities for real estate developers and investors
The ecommerce boom and its impact on warehousing demand present significant opportunities for real estate developers and investors. Understanding the evolving needs of ecommerce companies can guide strategic decision-making and investment choices in the real estate sector.
One opportunity lies in the conversion of retail spaces to warehouses. As brick-and-mortar retail experiences decline, vacant retail properties can be repurposed and transformed into modern fulfillment centers. This adaptive reuse allows real estate developers to repurpose existing structures, minimizing construction costs and optimizing land use.
Additionally, repurposing industrial buildings for warehousing purposes provides an opportunity to meet the growing demand for logistics space. Industrial properties with suitable locations and infrastructure can be retrofitted to cater to ecommerce companies’ specific requirements, offering attractive leasing options and long-term investment potential.
Strategic partnerships with ecommerce companies can be mutually beneficial for both real estate developers and retailers. By collaborating with ecommerce giants or emerging D2C brands, developers can tailor warehouses to meet their partners’ specific needs, ensuring long-term tenancy and revenue stability.
Conclusion
The ecommerce boom has had a profound impact on warehousing demand in the real estate sector. According to Rich Thompson, JLL’s Global Supply Chain & Logistics Consulting Leader. “E-commerce has been one of the biggest game changers to supply chain management since the introduction of the world wide web and the internet. It has fundamentally changed the way consumers buy as well as their expectations for delivery,”
The surge in online shopping behavior, evolving warehouse design, the rise of urban warehousing, and the demand for last-mile delivery hubs have reshaped the landscape of warehousing requirements.
Real estate developers and investors have an opportunity to capitalize on the growing demand for industrial and logistics spaces. By understanding the needs of ecommerce companies and adapting to their evolving requirements, developers can repurpose existing properties, create innovative warehousing solutions, and forge strategic partnerships to meet the demands of the ecommerce-driven market.
As ecommerce continues to thrive and shape consumer behavior, the demand for efficient warehousing solutions is expected to persist.
The warehousing sector will remain a key driver of growth and innovation in the real estate industry, creating new opportunities for those who embrace and adapt to the changing landscape of ecommerce-driven warehousing demand.
