With demand increasing, prices spike for sites located near population centers.
Whatever the facts and figures surrounding ongoing COVID-19 infections, the public discourse suggests that many political leaders and their voters are over, or want to be over, the pandemic. But one COVID phenomenon is unlikely to change: the growth in e-commerce and consumer demands for accelerated deliveries.
A recent study from Roadie, a UPS company that provides crowdsourced deliveries, found that consumers increasingly expect same-day e-commerce deliveries and are willing to pay extra for them. More importantly, the survey indicated that same-day deliveries generate immediate and positive effects on sales.
The survey responses demonstrate that “there’s a lot at stake” with same-day deliveries, said Valerie Metzker, head of partnerships and enterprise sales at Roadie. “When customers want something quickly, they’ll go with the provider that can get the order to them when they need it.”
In order to make that happen, e-commerce players need to locate inventory within or close to population centers. So, it comes as no surprise that the search for and development of last-mile distribution properties continues to grow, in a variety of sectors, including groceries and household goods.
Last Mile Logistics Space
Online grocery shopping, one of the fastest-growing segments of e-commerce, is one of the prime movers in the last-mile logistics space because of consumer demands for quick deliveries—not just same-day, but, in that space, within hours. Online grocery sales in the U.S. are expected to grow at a rate of 18% per year through 2023, according to a report from the market research firm Interact Analysis. Another recent report indicated that 70% of U.S. consumers now shop for groceries online at least some of the time, up from 40% at the beginning of 2021.
The speed at which groceries are expected to be delivered creates the demand for fulfillment centers within or directly adjacent to residential areas. That, in turn, suggests the desirability of positioning inventory in very small facilities and deploying technology to boost productivity.
In May, the cooperative wholesaler Associated Wholesale Grocers formed a partnership with Takeoff Technologies, a Massachusetts-based technology company that develops micro-fulfillment centers (MFCs)—miniature, automated warehouses that use robots to fulfill online orders. Typically holding between 12,000 and 20,000 of the most popular products, MFCs can operate as stand-alone facilities or inside the back of existing stores. Combining proximity to shoppers with automation provides two competitive advantages to grocery retailers looking to boost sales with an online alternative.
“AWG has been exploring emerging technologies to address the ever-changing retail landscape,” said Jeff Pedersen, an executive vice president at AWG. “The partnership between AWG and Takeoff Technologies represents a significant opportunity for AWG and its members to profitably grow online sales.”
Research by Takeoff Technologies indicates that MFCs increase productivity by up to ten times through improved speed, accuracy, and efficiency. Robotic fulfillment can reduce or eliminate product substitutions, according to the study, by providing real-time information about inventory. As of March, Takeoff had established 22 MFCs for companies including Albertson’s, Sedano’s Supermarkets, Big Y Foods, and Wakefern Food Corp. One report found that investments in MFCs could reach $10 billion by 2028.
Ryder’s Two-Day Window
E-commerce and last-mile deliveries are usually thought of in the context of small parcel deliveries, but Ryder is building out a last-mile network to facilitate the delivery of large items like appliances, furniture, and exercise equipment. Newly-established distribution centers in the Nashville and Boise areas put Ryder’s last mile network within a two-day delivery window of 95% of the U.S.
Those two metropolitan areas are among the top-20 fastest growing in the U.S., noted Steve Sensing, president of supply chain solutions for Ryder. “With quick access to highway and rail networks,” he said, the two new locations “increase speed-to-market, which is critical in today’s highly competitive environment.”
A new Ryder last-mile multi-client warehouse located just outside downtown Nashville opened in February with 100,000 square feet and more room to expand. In May, Ryder opened a 70,000-square-foot multi-client facility just outside of Boise, also with room for expansion. Ryder’s expansion decisions “aligns with our broader strategy to position our customers closer to their end-consumers,” said Sensing.
Besides positioning inventory closer to consumers, Ryder also offers four tiers of service, including “white-glove delivery,” which provides assembly, hook-up, and installation. Ryder is also investing in visibility technology such as RyderView, which enables consumers to schedule deliveries and track orders.
Link On the Hunt For Logistics Properties
With demand for last-mile facilities on the rise, Link Logistics, one of the largest operators of logistics real estate in the U.S., continues on its hunt for suitable properties. A recent company update reported that it owns, has interests in, or has under development, properties totaling 559 million square feet, 98% of which is leased. Link executed 18.3 million square feet of leasing during the first quarter of 2022 and expanded its development funding by 27% to $9 billion through the end of last year, representing 47.1 million buildable square feet of logistics space. Link Logistics also acquired 5.6 million square feet in 18 buildings in strategic markets and signed 465 new and renewal leases for 18.3 million square feet during the first quarter of 2022.
“We continue to benefit from the acceleration of e-commerce, the need for increased inventory, and emerging long-term trends such as nearshoring and onshoring,” said Luke Petherbridge, Link’s chief executive officer.
Link plans to deliver nine-million square feet of infill logistics real estate by the end of 2023 in Los Angeles, Southern California’s Inland Empire, South Florida, and New Jersey. “These properties,” said Petheridge, “will meet heightened demand for prime logistics facilities, creating additional supply and providing Link’s customers space to grow their businesses.”
As with many aspects of today’s economy, the costs associated with “infill” real estate, located in built-up urban and suburban locations and prized as last-mile facilities, are on the rise.
A recent report from Colliers, the real estate investment services company based in Canada, noted that the “red-hot industrial market is not without its pain points.” Industrial land near large population centers “is becoming increasingly scarce,” the report said, yielding “premium prices” and “fierce competition” for last-mile logistics sites.