E-commerce may be thriving online, but people forget that its success depends entirely on physical space: the distribution centers that keep things stocked and ready for delivery.
With online shopping on the rise, the demand for last-mile distribution space is growing—and it's ushering in a boom for the commercial real estate industry. For example, in the Bay Area, consumer demand for near-instant delivery has led to a 10% price increase for warehouse space. That’s in just two years.
So what does the future hold for brokers who hone in on this major opportunity? Here’s what you need to know.
- Smart technology will drive distribution center demand. Smart building technology promises to make everything more efficient. We’re nearing a future where you'll grab groceries from an Amazon-owned Whole Foods and walk out without the old-fashioned hassle of paying a cashier. We’ll also be seeing stores that re-stock themselves, thanks to sensors that automatically detect when items are out of stock and ping last-mile distribution centers for back-up supplies. And let’s not forget home technology, like Amazon Dash, that will keep automatic deliveries flowing into a home on a continual basis.
- Old-fashioned impatience, combined with futuristic innovations, will bring distribution centers closer to the action. Companies are rushing to meet consumer demand for same- and next-day delivery, according to NAI Martens. As consumers get used to ordering an item in the morning and getting it by noon, distribution centers will have to shift closer to the city center to make speedy deliveries possible.
- Self-driving vehicles and drones will make last-mile distribution hubs essential. We’re still working out the kinks (and the legislative hurdles) in the US, but you can soon expect to see drones and autonomous vehicles delivering everything from your pizza to your Amazon impulse buys. (Meanwhile, Iceland’s already on board with the concept).
- The idea of what a “distribution center” can be will get a whole lot more imaginative. Right now, a distribution center is pretty much a warehouse at the fringes of the city. But in the future, it may just take on the shape of a “drone beehive,” a centrally-located, multi-level hub accessible to the flying drones that make last-mile deliveries. Amazon’s already locking up the patent on this one, and even though it’s a mere idea at this point, it’s definitely challenging people to think differently about what distribution hubs have the potential to become. (And foreign startups are already testing the boundaries of the idea).
- Retail and industrial space will become intimately linked. Do you specialize in either retail or industrial space—but not both? That may change in the future, as demand for last-mile distribution shakes up the industry. As Buildout muses, retailers could start pairing smaller storefronts with larger last-mile distribution centers, giving brokers who bundle and market these properties together a creative edge.
- E-commerce will continue to surge. Of course, all of the above depends on the continued success of e-commerce, which is expected to do nothing but grow in the coming years. eMarketer predicts steady growth through 2020, when online sales are projected to top $4 trillion.
So where does this leave brokers? If you already specialize in last-mile distribution, we’d love to hear about your experiences, so please leave us a note. If you don’t, this may be a good time to look into it!