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E-commerce demand for space shaping industrial market

July 15, 2014

E-commerce is expected to become even more prevalent in the industrial real estate market as retailers seek large-scale spaces to house the logistics facilities taking the place of traditional brick-and-mortar stores, according to Globest.com.

E-commerce is expected to become even more prevalent in the industrial real estate market as retailers seek large-scale spaces to house the logistics facilities taking the place of traditional brick-and-mortar stores, according to Globest.com.

The e-commerce gold rush for logistics facilities
Forecasters have indicated that the share of retail transactions dedicated to e-commerce will continue to surge at double-digit rates for the foreseeable future, the publication reported. While the online share of the retail sector currently rests below 10 percent, it is expected to rise into the mid-teens during the next ten years.

E-commerce is transforming the industrial market, there’s no question about it,” Thomas Bisacquino, president and chief executive officer of the Commercial Real Estate Development Association, said at I.CON: The Industrial Conference 2014, according to NorthJersey.com.

“And you’re only going to see more and more of a push on these fulfillment centers, and the location of them,” he continued.

Online retailers, as their grip on the retail market strengthens, are expected to push for facilities proximate to their specified customer bases, according to a report by CBRE. The facilities they seek, which operate much differently than that of brick-and-mortar retailers, are expected to cannibalize other industrial spaces in an effort to expand their reach.

Traditional retail spaces are projected to be consolidated into larger logistics facilities in order to satisfy differing spacial needs. According to the report a brick-and-mortar retailer with $1 billion in annual sales will need between 300,000 and 350,000 square feet of logistics space. For an online retailer with comparable sales volumes the required space surges toward one million square feet.

“By 2017, online sales could account for more than one-tenth of all US retail sales, up from 6.2% in 2013,” said Adam Mullen, head of supply of chain services at CBRE. “To keep up with growing demand, e-commerce companies and, increasingly, traditional retailers are making major investments in big-box facilities that function both as warehouses to store goods and distribution centers to fulfill online orders.”

E-commerce growth outpaces overall retail with the help of mobile transactions
In 2013 online retail sales grew by 14 percent, reports Business Insider. This was much more than the single-digit growth of retail sales in the United States overall. While the majority of these transactions happened on computers, the retail market has also seen notable growth in the volume of mobile sales completed in 2013.

By 2018 global mobile sales are expected to total an estimated $638 billion, according to a Goldman Sachs forecast cited by the publication. In 2013 the entirety of global e-commerce sales was in the same ballpark as the projected mobile numbers for 2018.

In fact in 2013 mobile sales had a 32 percent share of the total number of e-commerce transactions.

“Making mobile payments faster and easier is a big driver for the types of mobile technology that are being developed,” said Jason Oxman, CEO of the Electronic Transactions Association, according to Business Insider.

Rapid growth leaves fewer available logistics spaces
All of this expansion and the demand for physical space to accommodate the surging e-commerce market has led to a strain in the available number of class A logistics facilities, explains the CBRE report. In the past two years developers have began speculative construction on 45.7 million square feet of space. However, CBRE still does not project supply to outpace demand for facilities within the near future.

“Demand from e-commerce companies has played a leading role in the recovery of the U.S. industrial real estate market over the past two years,” said Scott Marshall, the executive managing director for industrial services for the Americas at CBRE.

“During the first quarter of 2014, virtually all U.S. markets were buoyed by strong demand for distribution space from the e-commerce sector. Supply chain demand was centered in major inland and coastal port markets, resulting in strong absorption and shrinking availability in markets such as Atlanta, Chicago, Miami and Houston.”

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