2018 Hottest U.S. Retail & E-Commerce Fulfillment Markets
Top 2018 U.S. warehouse fulfillment & distribution markets
In an earlier blog posted on April 19, 2018, we took a look at the effect that e-commerce has had on the industrial real estate market, specifically as it relates to warehouse, fulfillment and distribution center facilities. Interestingly enough, as compared to that of brick-and-mortar retail, online sales are a small percentage of overall retail sales in the U.S. So how is it that e-commerce order fulfillment is being credited with having such a major impact on the industrial real estate market across the United States?
You may not realize it but about 90% of total retail sales occur in brick-and-mortar retail stores. This seems shocking considering the amount of failed retail shopping malls and empty storefronts across America. Consumers still highly value the customer experience: the ability to touch, feel and experience goods they are thinking of purchasing. Only about 4% of total retail sales come from “pure-play online retailers”, that is companies that lack physical stores as part of their business retail strategy.
Yes, it is true that this 4% includes Amazon (need we say more?), one of the greatest innovators and disruptors in our world today. But Amazon alone is not causing disruption to the supply chain logistics industry. Although other online merchants such as Wayfair and Overstock are popular with massive sales volume, the list of top e-retailers is dominated by brick-and-mortar retailers that also have an e-commerce business component to increase sales. Pick and packing, shipping items and logistics processes are all essential elements of fulfilling the orders of your customer base, but in this industry, location really matters. Whether the retailer relies on a third party fulfillment provider or in-house fulfillment, having a facility that is close to the target population can produce dramatic transportation and time savings, vital to maintaining competitive advantage and keeping costs down for the customer base.
What is causing disruption to the supply chain logistics industry is Consumers. No longer are supply chains focused on products. Now consumers are ruling the roost. Goods used to move from manufacturers to wholesalers, retailers and distributors to warehouses and distribution centers. Bing, bang, boom. Just like clockwork, day in and day out, palletized goods were moved in a highly predictable manner to reach destinations where consumers could purchase them and transport them to homes across the globe.
But no more….
Today, goods are ordered and purchased in stores, online via desktop computers, Smartphones and tablets, via phone, catalog and mail order and need to reach consumers and businesses in a myriad of ways. No longer is the supply chain processing only palleted goods. Today, the sheer volume of individual orders across the U.S. supply chain is staggering, necessitating more shipping carriers, last mile delivery providers, transportation modes, roads, etc. to get the goods to their final destination and meet consumer expectations.
Because of the sheer volume of individual orders, fulfillment warehouses and distribution centers must be constructed in ways that are different than used in decades past. High ceilings, expansive facilities tens of football fields in square footage are now the norm. Omnichannel fulfillment warehouses typically want larger bays with more room for trucks, high ceilings for high bay, computerized rack systems and plenty of warehouse space to accommodate a vast number of SKUs. Warehouse space is also critical due to dynamic conditions, changing patterns of demand and fluctuations to meet consumer trends and the need for speed.
Did You Know….
- That the demand for U.S. warehouse space exceeded the supply by 20 million square feet in 2017? As large as a gap as that seems to be, it is actually a reduction in the gap between that experienced between 2016 and 2015, nearly 130 million square feet.
- Today construction is proceeding at a more rapid pace. According to CBRE, the gap between supply and demand for warehouse space in 2018 is closing, as of the first quarter. In Q1 2018, 35 million square feet of new warehouse space was constructed against a demand of 41 million square feet.
- For every $1 million in online sales volume, an e-commerce operation requires approximately 1.3 million square feet to operate effectively.
- Real estate professionals have uncovered a market for smaller, lower-height, small-bay industrial facilities if well-located near urban populations. These smaller facilities can be used for last mile delivery of e-commerce orders
Combine this with the need to be close to major population areas and you can start to see the problem. Yesteryear’s warehouse was built farther from populated areas, in more rural zones where land, taxes and labor were less expensive. Today, because goods need to reach the consumer within two days, but often the same day or next day, goods need to be positioned closer to where consumers live and work-most frequently, urban areas. Truck driver shortages, mandated use of electronic logging devices, fuel cost, traffic congestion near urban areas are all factors that are influencing the need to position warehouse facilities near population centers. This is how the industrial real estate market is impacted.
Most major population areas are built out and do not tend to have much open space on which to place expansive warehouses that require a million or more square feet of space. Some cities have infill zones or are in reconstruction mode, with plenty of aging buildings open to tear down, or have “dead” shopping malls or brownfield sites for development. Lack of available land is the most significant problem in this raging e-commerce fulfillment-driven warehouse marke
Most major population areas are built out and do not tend to have much open space on which to place expansive warehouses that require a million or more square feet of space. Some cities have infill zones or are in reconstruction mode, with plenty of aging buildings open to tear down, or have “dead” shopping malls or brownfield sites for development. Lack of available land is the most significant problem in this raging e-commerce fulfillment-driven warehouse market.
Hot U.S. Markets for E-commerce Fulfillment Services
What makes a hot fulfillment market?
- Near major population centers such as urban areas
- Substantial availability of land that can be developed as needed for large-scale warehouses (typically 1 million square feet+)
- Access to Transportation
- Major roadways, railroads, airports, ports, etc.
- Availability of affordable labor resources
- Business-friendly environment
Here is a look at three of the most popular industrial real estate markets for warehouse fulfillment and distribution centers in the U.S. in 2018:
What factors make Dallas a top fulfillment market?
- Proximity to Ports of Los Angeles and Long Beach
- Gateway for Asia-Pacific trade
- Massive population base
- Class A big box opportunity
- Availability of land to be developed for industrial real estate
- Land cost lower than in adjacent areas
- Newer warehouse facilities with modern amenities often lacking in adjacent markets
- Thriving, and growing labor market
- Availability of top real estate product & development activity
Optimus Logistics Center
The e-commerce product fulfillment boom continues to fuel growth in sprawling Inland Empire and has attracted a New York developer with a commitment to build a $110 million, two building warehouse project.
The 1.45 million square foot warehouse project should be completed in summer 2018 and will be called Optimus Logistics Center. The developer, Rockefeller Group bigger building is so enormous that contractors are using lasers to gently follow the curve of the earth when laying the concrete floors.
The two warehouse buildings will be able to service 232 trucks at one time. Between the years of 2010 and 2016, 13 mega warehouses with 1 million or more square feet were constructed in Inland Empire.
Watson Industrial Park Chino (WIP Chino)
A 263 acre master-planned Class A industrial property has completed the lease up of the second phase of development after securing two leases totaling approximately 1.2 million square feet. Upon completion, WIP Chino will consist of 5.1 million square feet in 11 buildings. At this point, almost 2.6 million square feet has been finished in 5 buildings and is occupied.
Phase three of the WIP Chino projects includes over 1.4 million square feet in three new buildings. Upon completion, phase four will begin with construction of an additional 1.1 million square feet of space in three buildings.
All phases of construction are projected to be completed by the end of 2019. Strategically located with access to primary transportation corridors and freeways, the Ports of Los Angeles and Long Beach, the Burlington Northern Santa Fe and Union Pacific railways and numerous regional airports, WIP Chino has a prime location, ideal for warehousing, distribution and fulfillment operations.
What factors make Las Vegas a top fulfillment market?
- Central location, ability to serve Western states and 60 million people
- Available labor pool
- Access to robust highway transportation network
- Access to Union Pacific rail line
- Rail transport freight to & from Ports of Los Angeles & Long Beach
- Foreign Trade Zone #89
- Low tax structure-no inventory or warehousing tax
- Land availability & ability to build big-box product and massive warehouse facilities
Cosmetics giant Sephora plans to build a 714,000 square foot warehouse at the Tropical Distribution Center in North Las Vegas. Set to open in 2019, the Sephora fulfillment and distribution center facility will be adjacent to the new 2.4 million square foot Amazon fulfillment center. The Las Vegas Global Economic Alliance anticipates that the warehouse will employ up to 460 workers.
The Sephora Warehouse will include a distribution center for brick-and-mortar retail stores as well as an e-commerce fulfillment center to handle direct to consumer (D2C) shipping. The Las Vegas Sephora warehouse will ship products to stores and consumers in 11 Western states. Currently Sephora has 9 retail locations in Southern Nevada.
Sephora’s DC and fulfillment center will feature state-of-the-art automation and robotics systems, often used in the fast-paced world of e-commerce fulfillment to handle the onslaught of individual orders at rapid speeds
TJX, Bed Bath and Beyond and Walmart
With one of the largest distribution operations in Southern Nevada, TJX is poised to add onto its 700,000 square feet of warehouse space by adding an extra 400,000 of warehouse space.
The Las Vegas Valley has reaped the benefits of the investment in huge, speculative industrial buildings made by two major developers. Warehouse space is a necessity for retailers looking to handle their e-commerce operations. Companies including Fanatics, The Honest Company, Walmart and Amazon announced plans for warehouse, fulfillment or distribution centers in North Las Vegas between 2016 and 2017.
Ranging from 300,000 to 800,000 for typical industrial buildings under construction in Southern Nevada, the space is ideal for warehouse, fulfillment and distribution centers due to its easy access to roadways and rail.
Dallas-Fort Worth Texas (DFW)
What factors make Dallas a top fulfillment market?
- DFW is strategically located near the geographic center of North America’s four major cities: New York, Los Angeles, Toronto and Mexico City
- Huge population base with growth forecasted by largest overall differential in the U.S. over the next 5 years
- Dallas has the lowest distribution center costs to reach the top 50 U.S. consumer markets
- Access to significant, lower cost workforce
- Class I rail lines & intermodal operations
- 93% of the U.S. market can be reached in 3 days or less via ground service, 79 markets can be reached overnight
- Desirable weather conditions: mild temperatures and weather conditions mean minimal weather-related delays
- S. population center is migrating West and South away from the Northeast, directly towards Dallas
Dallas-Fort Worth Attracts Major E-Commerce Fulfillment Warehouses
VMInnovations, an online retailer that sells major brands of sports, outdoor equipment, home and garden and electronics products recently leased a huge industrial complex near Interstate 45 in southern Dallas County.The industrial complex will be used for a new shipping hub and fulfillment center.The site location is ideal.
Using the local last mile delivery services network, VMInnovations will be able to provide quick service of direct-to-consumer (D2C) deliveries in the southern region. The South Dallas area is flanked by Union Pacific Intermodal 1.5 miles away and the second largest FedEx Ground facility in the U.S. 2.75 miles away. The VMInnovations lease is the first in the new 754,897 square foot distribution facility.
The South Dallas area certainly is hot. Amazon is putting together a deal to lease over a million square feet of warehouse space on Interstate 45 in Wilmer for a distribution hub.
This would be the third major facility that Amazon has secured in southern Dallas County. Currently Amazon already has eight distribution and sorting centers in the Dallas-Fort Worth area, including a 920,000 square foot warehouse south of Interstate 20 and a 500,000 square foot fulfillment center on I-20.
In the world of global ecommerce, from Phoenix to Hong Kong to the United Kingdom, the global ecommerce market is fueling the increased need for large scale warehouse and fulfillment center space close to major population centers, roadways, rail, ports and airports. This is largely because consumers expect immediate delivery in less than two days. The online shopping cart rules and the customer experience is critical. Today’s supply chain is stretching in multiple directions to meet customer satisfaction objectives.
Selling online is complicated enough without having to figure out how to fulfill orders rapidly. Online stores and retailers with ecommerce businesses are opting to position fulfillment warehouses and distribution centers close to population centers to reduce transport and delivery times and give themselves a competitive advantage.
This is the first in a series of blogs that will focus on the hottest retail and e-commerce fulfillment markets in the United States. Stay tuned. More coming your way soon.
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