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E-Commerce Headed to Urban Warehouses

E-Commerce Headed to Urban Warehouses

CBRE Inc, the largest commercial real estate services firm in the world for investors and occupiers, states that demand for smaller warehouses in urban area has increased, driven by online retailers wanting distribution centers that are closer to their customers. One can easily see why: In a four year period from 2006 to 2011, online retail sales grew globally by over 16% each year with an almost $435 billion revenue in 2010.

Online shopping is changing for both the retailers and the consumers. Shoppers scour the internet and emails and social media for coupons and deals, and then buy through online shops instead of brick-and-mortar stores. Internet retailers are expected to keep both fast-moving and slow-moving items always in stock on their shelves and offer fast shipping options, often same day or next day delivery.

Distribution demands are changing as online shopping is expanding and consumers are wanting faster and faster delivery times. This rapidly growing market of e-commerce is changing the way companies have grown accustomed to shipping. And now, it’s all about location, location, location and not so much about a sprawling retail space or state-of-the-art machines.

Smaller warehouses stationed in urban zones across the U.S. are one way to meet this shift in shipping demands. CBRE analysts report that they expect demand for 200,000 square foot or less industrial structures standing in areas with high-populations to rise in the coming months and years. David Egan, CBRE’s head of U.S. industrial research, said that retailers aren’t shying away from their huge remote distribution centers, but are adding more, smaller ones into the mix. “You need to expand and make your supply chain much more complex if you want to be able to promise and deliver on that same-hour, same-day or overnight delivery everyone is coming to expect,” Mr. Egan said. Egan remarked that CBRE is tracking steady growth in these smaller industrial real estate deals. “No longer is the entire market driven by the 500,000-square foot and above user,” he said.

Amazon is a major player in the perceived move, hoping to offer the lightning-fast delivery times the e-commerce market is beginning to demand. Amazon, which is based out of Seattle, traditionally has utilized large warehouses planted far from each other, but in 2013 they launched a network of smaller centers in the London, England area. This past June, they brought that business model to the U.S. with 19 active small warehouses with more on the way. These small buildings serve as the last leg of the journey for merchandise coming from the larger, more remote centers before it’s shipped out to the customers. These packages are then delivered by bike messengers, UPS or FedEx type carriers or even on foot.

Egan said that the longer retailers wait to snap up some little more centralized facilities, the greater the price tag will be. “When you add complexity, you add layers and you add more steps in that process,” Mr. Egan said. “With that comes cost.” But right now, availability is looking good and rent prices are fairly reasonable, according the research CBRE did. In the future, we can expect to see online retailers popping up in cities all around us, with smaller distribution centers capable of shipping faster than ever.

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