Last Mile Delivery
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Last Mile Delivery

Last-Mile Industrial Real Estate

The growth of e-commerce has led to the disruption of the retail real estate landscape. According to a report released online by Green Street Advisors in late April 2020, the real estate research firm predicts over 50% of mall department stores to close by 2021.

Key Takeaways:

  • The “last-mile” of the supply chain consists of the delivery of goods to a retailer or consumer.
  • “Last-mile” facilities are located close to large urban areas and distribute goods via multiple channels and along several routes.
  • Many industrial properties currently don’t have the capacity to accommodate the growing demand for e-commerce. They lack the high ceilings and durable floors that are necessary for “last-mile” distribution facilities.
  • More so now than ever, consumers are purchasing goods online and expecting deliveries to arrive within days, increasing the need for “last-mile” distribution facilities.

 

One of the hallmarks of e-commerce is the consumer’s ability to receive a product ordered online wherever they are, free of additional shipping charges, often within two days. For online retailers to satisfy such customer expectations, the implementation of an efficient “last-mile” distribution strategy is critical. Customers now expect advance notification by text message, telling them the actual time their delivery will arrive so they can plan accordingly, or if plans change last-minute the recipient can instruct the driver where to leave the delivery.

What is “last -mile” industrial?

While large warehouses, industrial facilities, and regional distribution centers across the country comprise the “first miles” of distribution, the “last-mile” of the supply chain represents delivery to a retailer or purchaser’s home. Currently, last-mile and last-touch facilities are typical of older vintage and smaller due to their locations in proximity to end consumers in dense, urban areas. Unlike traditional shipping of large volumes of cargo being transported along fixed routes, last-mile delivery often involves transportation of smaller parcels along multiple routes. According to Mordor Intelligence (and as shown in the chart below), the costs associated with the last-mile delivery represent 53% of the overall logistics cost. Mitigating the increased cost of disparate distribution is critical for retailers as consumers expect fast and free delivery.

What is contributing to imbalance for last-mile industrial supply?

Existing industrial properties are often outdated to support e-commerce given their small, low ceiling heights, inadequate loading dock infrastructure, and insufficient durability to support substantial floor loads and heavy wear and tear. Given the increased truck traffic and noise from such facilities, these properties are often further confined by existing zoning laws prohibiting modifications to meet the demands of e-commerce.

According to a 2019 study from Jones Lang Lasalle (JLL), nearly one billion square feet of total U.S. warehouse inventory (13.2Bn SF) is more than 50 years old and has clear heights of less than 20 feet. High ceilings are essential to modern vertical racking systems, which is an important consideration for last-mile delivery.

 

What is the outlook for Industrial real estate, and specifically last-mile logistics?

According to a report published by JLL in 1Q 2020, industrial fundamentals continue to demonstrate positive performance with rents increasing approximately 9% year-over-year and vacancies at historic lows of approximately 5%. The industrial sector is proving to be a bright spot in the commercial real estate market.

Online retail is predicated on speed, especially as Amazon makes same-day delivery the new standard putting pressure on retailers to deliver faster. It remains unclear how much more speed industrial real estate — existing and planned — can support in the decade ahead. As demand for same-day shipping grows, developers are testing multi-story industrial facilities to address the supply constrain factors discussed above.

Consumer buying trends and the real estate supply-demand imbalance create the potential for industrial to deliver strong risk-adjusted returns in the coming years – particularly facilities that are suited to last-mile fulfillment. While we advise investors to build a well-balanced investment portfolio that fits their overall needs, we recommend considering investments within the industrial asset class.

Source:

www.equitymultiple.com