Over the past years, the retail industry has undergone a revolutionary transformation due to the rapid expansion of ecommerce. Online shopping has become increasingly popular among consumers, leading to an unprecedented surge in the need for warehousing space. CBRE predicts that in 2023, the growth of ecommerce will continue to be a major force driving the demand for industrial space. The exponential rise of ecommerce has played a vital role in fueling this heightened need for warehousing facilities. This blog takes a deep dive into the profound impact of the ecommerce boom on warehousing demand within the real estate sector. By presenting compelling statistics and insightful analysis, we explore the key trends that are reshaping the warehousing landscape.
The Impact of Ecommerce on Warehousing Demand
The shift towards online shopping has had a significant impact on the demand for warehousing space. As more and more consumers prefer the convenience of shopping from home, ecommerce companies face the challenge of managing their inventory and fulfilling orders efficiently. This has led to a substantial increase in the need for warehousing facilities.
One of the main drivers of this demand in the ecommerce era is the necessity for effective inventory management. Ecommerce businesses must maintain extensive and diverse inventories to meet customer demands. Warehouses play a central role in storing, organizing, and processing these inventories, ensuring that orders are fulfilled promptly.
Furthermore, the rise of Direct-to-Consumer (D2C) brands has also contributed to the surge in warehousing demand. By bypassing traditional retail channels and selling directly to customers, D2C brands require dedicated warehousing space to store their products and streamline order fulfillment processes.
Evolving Warehouse Design and Sizing: Adapting to Changing Needs
The ever-expanding inventory requirements of ecommerce companies have prompted significant transformations in warehouse design and size. As ecommerce players seek streamlined order fulfillment processes, warehouses have experienced a noticeable surge in average dimensions.
CBRE’s projections reveal the staggering growth of the U.S. e-commerce market, which is expected to account for 26% of all retail sales by 2025. This rapid surge in online shopping necessitates the addition of an astounding 330 million square feet of warehousing and distribution space across the nation. The first quarter of 2022 witnessed an unprecedented spike in warehouse construction, resulting in a groundbreaking 546.1 million square feet of new warehousing and distribution facilities. These figures underscore the urgency to meet the surging demand for warehousing, driven by the flourishing e-commerce industry.
Traditionally, warehouses were primarily geared toward bulk storage and distribution. However, the ecommerce boom has necessitated the adoption of larger warehouses capable of handling substantial volumes of individual orders.
JLL recognizes the remarkable opportunity presented by the swift growth of e-commerce. According to their projections, an additional $900 billion in sales by 2025 would create a tremendous demand for over 1 billion square feet of industrial real estate. This eye-opening statistic emphasizes the critical importance of expanding and optimizing logistics infrastructure to meet the anticipated surge in e-commerce transactions in the years ahead.
Enhancing Warehouse Design with Technology and Adaptability
An essential element of modern warehouse design involves embracing advanced technologies. Ecommerce companies recognize the significance of incorporating warehouse automation, robotics, and artificial intelligence to enhance their operations, boost efficiency, and cut down on labor expenses. With the aid of these innovations, they can achieve faster order processing, precise inventory tracking, and an overall improvement in warehouse productivity.
Moreover, warehouses now face the challenge of supporting multi-channel fulfillment. As ecommerce companies expand their presence across diverse online marketplaces and channels, warehouses must adjust accordingly to handle a variety of order types, including B2C (Business-to-Consumer), B2B (Business-to-Business), and D2C. The adaptability in warehouse design and layout becomes critical to optimizing space utilization and ensuring efficient order processing for different sales channels.
Urban warehousing and last-mile delivery
With the surge in ecommerce and the growing need for quicker deliveries, urban warehousing has become increasingly prominent. Being situated close to densely populated regions and major transportation networks has now become vital for ecommerce companies to meet their customers’ expectations.
Urban warehousing presents both challenges and opportunities. Limited available land in cities often calls for inventive solutions, such as vertical warehousing or the repurposing of existing buildings. Transforming underutilized urban spaces like old factories or commercial buildings into modern fulfillment centers has become a popular trend to fulfill the warehousing demands.
The escalating expectations for last-mile delivery have led to the establishment of last-mile distribution hubs. These hubs are strategically positioned near end consumers, facilitating faster and more efficient deliveries. By locating warehouses in urban areas, ecommerce companies can reduce transportation costs, enhance delivery speed, and improve the overall customer experience.
To tackle the space limitations in urban environments, innovative approaches like micro-fulfillment centers are gaining momentum. These smaller-scale warehouses, situated within or near urban areas, are designed to efficiently handle high-velocity, small-item fulfillment. They enable rapid order processing and expedited delivery, catering to the demand for swift ecommerce transactions.
Prospects for Real Estate Developers and Investors
The rise of ecommerce and its impact on warehousing demand brings promising prospects for real estate developers and investors. A keen understanding of evolving ecommerce needs can guide strategic decision-making and investment in the real estate sector.
A particularly enticing opportunity lies in transforming retail spaces into warehouses. With traditional retail experiences declining, vacant retail properties can be converted into state-of-the-art fulfillment centers. This adaptive reuse approach allows developers to repurpose existing structures, minimizing construction costs while optimizing land utilization.
Moreover, repurposing industrial buildings to cater to warehousing needs opens doors to meet the ever-increasing demand for logistics space. Industrial properties in favorable locations, equipped with suitable infrastructure, can be retrofitted to cater specifically to the requirements of ecommerce companies. These transformations offer attractive leasing options and hold significant long-term investment potential.
In pursuit of mutual benefits, forging strategic partnerships with ecommerce companies becomes advantageous for both real estate developers and retailers. Collaborating with established ecommerce giants or emerging direct-to-consumer (D2C) brands empowers developers to tailor warehouses to precisely match their partners’ needs. This fosters long-term tenancy agreements and ensures a stable revenue stream.
Conclusion
The real estate sector has undergone a profound transformation in response to the booming ecommerce industry. According to Rich Thompson, JLL’s Global Supply Chain & Logistics Consulting Leader, e-commerce ranks among the most significant disruptors to supply chain management since the inception of the World Wide Web. Consumers’ purchasing habits and delivery expectations have been fundamentally altered by this digital revolution.
As a result of the surge in online shopping, warehouse design has evolved, urban warehousing has gained prominence, and last-mile delivery hubs have become increasingly crucial. These factors have reshaped the requirements for warehousing spaces.
Real estate developers and investors now have a golden opportunity to capitalize on the growing demand for industrial and logistics spaces. By comprehending the unique needs of ecommerce companies and adapting to their ever-changing requirements, developers can repurpose existing properties, devise innovative warehousing solutions, and form strategic partnerships to cater to the ecommerce-driven market’s demands.
As the ecommerce industry continues to thrive and shape consumer behavior, the need for efficient warehousing solutions will remain steadfast. Consequently, the warehousing sector will continue to serve as a key driver of growth and innovation within the real estate industry. Embracing and adapting to the evolving landscape of ecommerce-driven warehousing demand will open up new and promising opportunities for forward-thinking individuals and businesses.
