WHILE NOT without challenges, the US economy continues to expand at a pretty healthy clip say economists – and a hearty consumer appetite for e-commerce is helping to lead the way. Today,

consumers both demand and expect fast deliveries, a precedent set by Amazon’s investment in next- and same-day deliveries, a fact that has greatly affected how warehouse and distribution centre (DC) space is now sought, secured and managed.

Demand for this real estate sector (a sub-sector of industrial product) is very high, with vacancies registering today around 4.3 percent – the lowest ever. Historically, vacancies have hovered between 8 and 9 percent. “We’re seeing this trend across the Americas, regardless of region or market size, says Tray Anderson, Logistics and Industrial Lead with real estate brokerage giant Cushman & Wakefield. “This is all driven by the fact that companies are now pursuing direct fulfillment for the first time, while promising shorter delivery windows for customers.”

And to meet this boiling new demand, a strong pipeline of space is coming online every quarter.

“In fact, 280 million square feet of industrial and distribution space is currently under construction, with the vast majority being for warehousing,” says David Egan, Global Head of Industrial Logistics Research at CBRE, a commercial real estate services company.

Challenges explored

As nearly every company making the move to order fulfillment is experiencing, challenges abound – and one of the biggest is finding space… any space. “Almost every place in the country is severely constrained,” says Egan. “And the options are few for users entering the market. Finding the right building is important, but finding the best location is tougher.”

The reason: e-commerce retailers require three- times the logistics space compared to pure brick- and-mortar operations, and they also need to be in areas with good transportation networks and closer to end-consumers. “Given today’s demand for last-mile warehousing, there’s pressure to get closer in to the cities, but that’s hard to do when a building is that big,” Egan says.

Consequently, users are pushing for bigger buildings with taller clear heights such as the one million square foot Amazon fulfillment centre in Chester, Va. From there, consumers within a 300- to 500-mile radius can be reached within one day. “We have three floors of space that are equivalent to three football fields,” reveals Dan Miller, Director of Operations and GM at the Chester facility.

However, fulfillment centres are also being built with smaller footprints. Case in point: the 856,000 square foot centre Amazon opened last year in Kansas City, Kan. The size of about 14 football fields, the centre has some 2.4 million usable square feet on four floors.

Still, site selection is problematic, and established markets offer their own set of challenges. “Vacant warehouse space may be available, but, most likely, is the wrong type of space given ceiling heights and power capacity,” says Chris Steele, VP of the Advisory Division at Conway Inc., a domestic and cross-border corporate investment services firm.

Most users today need buildings that can accommodate materials handling systems and equipment, ceiling heights, Internet bandwidth and, externally, ample apron parking so that goods can be moved in and out of the facility without restraint. “Companies are finding that they must do more for trailer storage so that a driver can drop one trailer off and pick another up,” Steele says. “Then there’s the issue of providing parking for truckers who have timed out on their driving hours as per FMCSA rules. If the facility was built 25 years ago, it’s probably not appropriate.”

The trend for time-specific deliveries is especially accelerating last-mile concerns, causing many DCs to be located near urban centres to be closer to consumers. Given the shortage of space in some markets, some users are turning to adaptive reuse of older industrial properties in cities like Baltimore, Philadelphia, Boston, Chicago and Toronto. “This has caused an interesting renaissance for older buildings,” adds Steele. “These building do require refitting, as modern warehouses are not the same as older facilities.”

Human-centric issues

However, at the top of the list of site selection concerns now is finding and retaining employees given today’s low unemployment rates. Enter human-centric design.

“In my experience, companies that have put an emphasis on quality of life and a positive work culture and have been able to effectively attract and retain employees, even when in direct competition with some of the largest industrial occupiers in the market,” says Cushman & Wakefield’s Anderson.

Given the uncomfortable temperatures in warehouse and DC facilities, heating and air conditioning is the most obvious amenity that could be offered to workers. But historically, such temperate environments have been uncommon. “Putting AC and heating in these buildings comes at a big cost,” Egan says. “And depending on how the lease is written, the utility bill either goes go to the owner or the tenant.”

Today more buildings are being built with comfort in mind. “Workers still go to work where the salaries are the highest,” says Egan. “However, they will also go where they are more comfortable.”

Going forward

Today’s need-for-speed gives logistics operators little choice but to implement automation that, in turn, has a major impact on warehouse size. As a result, DCs will continue to get bigger, and clear heights will get taller, consultants say.

“Clients who deal in high volumes and less bulky products are already taking advantage of carrying more SKUs thanks to automated handling systems,” says Connor.

Amazon has single-handedly changed the market for warehousing and DC space. But other companies such as William Sonoma that have changed their business models are increasingly driving warehouse and DC development. “Today they look at the store as a showroom where customers can see and touch product,” says Connor. “This see and touch has resulted in 52 percent of their sales coming from the Internet and, hence, the DC.”

Going forward, experts see DCs getting bigger and technological advances getting better. An example is Prologis Labs, a 13,000-square foot space in San Francisco that has been outfitted with working racks and loading bays with a focus on logistics components for digital supply chain/digital warehousing, attributes of the next- generation DC and transportation and urban fulfillment.

Steele says that he sees the third-party logistics concept morphing into collaborative warehouses and consolidation centres across different manufacturers and retailers. “And then, there’s the issue of how drones will fit into all of this. Stay tuned.” he adds.