Throughout history, emerging trends, economic shifts, and world events have constantly shaped the commercial real estate market, as well as organizations’ real estate decisions. This is especially true for manufacturers, industrial companies, and other organizations that rely heavily on the efficient warehousing and distribution of their goods.
As European explorers discovered new shipping trade routes across the world, there emerged a necessity for storing products and commodities. The development of the railroad in the United States meant more warehouses and distribution centers located not only near ports, but major railway corridors as well.
While the wide adoption of Just-in-Time (JIT) delivery practices over the last few decades have led to many companies reducing their portfolio of warehouses, the COVID-19 pandemic and other emerging trends have recently resulted in a surge of demand for more robust logistics real estate portfolios.
For more information about logistics real estate, read our Ultimate Guide to Logistics Real Estate Transactions.
How COVID-19 Has Impacted Logistics Real Estate
The COVID-19 pandemic has profoundly impacted all industries—and logistics real estate is no exception. Worldwide quarantining at home led to fewer consumers shopping in-store and turning instead to e-commerce alternatives. This accelerated adoption of e-commerce spending created an extreme demand for more warehoused goods and faster delivery services.
To accommodate rise in consumer demand and prevent future product and materials shortages, companies looked, and are still looking, to expand their logistics real estate portfolios of warehouses and distribution centers.
While markets surrounded by interstate highway networks, like Columbus, were equipped with ample logistics real estate properties, others like the nearby Cleveland manufacturing hub have struggled to meet the need for more warehouses and distribution centers. Labor and materials shortages have also affected the construction of new logistics properties, ultimately leading to record low vacancy rates and high rental rates for the real estate that is left.
Other Trends Affecting Logistics Real Estate
Although the COVID-19 pandemic stands as one of the largest factors impacting logistics real estate in recent history, other emerging trends have also affected the development of warehouses and distribution centers. COVID-19 accelerated a lot of trends that were already taking place.
Same- or Next-Day Delivery
Big brands like Amazon have conditioned consumers to expect goods within one or two days of purchase. To keep up with this same- or next-day delivery standard, companies rely on small-scale logistics properties located within or on the outskirts of urban areas. These distribution centers allow companies to efficiently deliver goods to customers in “the last mile,” or the short distance that must be covered to deliver goods to end-users.
Increased e-commerce spending naturally means more returns being made as well. The services that companies provide after a sale—returns, refurbishment, repairs, reselling, and recycling—are called reverse logistics.
To handle both sides of the logistics process, companies often expand their logistics real estate portfolio to include warehouses and distribution centers for both stocked goods and the management of reverse logistics.
Technology and Automation
Technology and automation improvements have long impacted warehouses, distribution centers, and manufacturing facilities alike. To cut costs and improve efficiencies, warehouses are turning to pick-and-place technologies like automated guided vehicles (AGVs) and automated retrieval solutions.
From a logistics real estate perspective, this means that features like power requirements, proper refrigeration, and insulation for technologies are higher priorities when purchasing or building distribution centers and warehouses.
With record low vacancy rates, materials shortages, and soaring property demand, we’re living in an unprecedented point in history for logistics real estate. Is your organization’s logistics infrastructure equipped to handle the changes these trends bring?
Want to learn more about logistics real estate?
With the rise of e-commerce, warehousing and logistics have become a critical component of many companies’ commercial real estate portfolios. To learn more about logistics real estate and the trends impacting your decisions today, take a look at our Ultimate Guide to Logistics Real Estate Transactions.