Cushman and Wakefield: delivering on consumer demands poses challenges for real estate

E-commerce has seen unprecedented growth. While many industries battled disruptions, e-commerce provides opportunity. E-commerce and logistics companies are accelerating planned innovation and restructuring initiatives to stay ahead of the curve spurring the implementation of three to five years of advancements in a span of just five months to keep up. “It’s akin to upgrading the jet while traveling at Mach speed”, according to Benjamin Conwell of Cushman and Wakefield.

Retailers and shippers cannot deliver on consumer demands unless the broadest selection of inventory is positioned close to significant populations; having the right inventory in the right places at the right time. Benjamin Conwell: “Nothing happens on the shop floor, whether digital or physical, that doesn’t have an impact on the supply chain. Ever-changing consumer behaviors mean real estate and supply chain professionals must make quick decisions during a time when nearly every aspect of the industry is in flux. Everything from network planning and building size to labor and automation is changing. Not to mention the expectation of free and faster shipping”.

The logistics and industrial sectors are the only real estate sectors to remain resilient during the pandemic. Even before the pandemic, there was upward pressure on rents, and increased demand for quality space created barriers for real estate decision-makers in e-commerce.Benjamin Conwell: “Add in pandemic-driven disruptions and peak holiday shopping season and you have a recipe for never-before-seen demand for last-mile delivery stations and fulfillment centers”.

Balance location and labor availability

Benjamin Conwell: “It takes more than a well-designed building to make a logistics facility successful. The search for an ideal location requires an intricate balance between location and labor availability. You need to be close to the consumer to facilitate fast delivery, but also in a location that provides a qualified and sustainable employee pool. When searching for a location, it’s important to weigh all the factors. A proper labor analysis digs into employee drive-times, the extent of existing warehouse jobs, turnover, number of eligible workers, unemployment, and wage rate trends. It’s also vital to consider labor availability for peak season. It’s common for large e-commerce facilities to see hiring needs double to support the peak holiday shopping season. Leaving no margin for error in underwriting labor”.

Warehouse automation

With labor sometimes in short supply, automation is often a consideration. However, the trade-off between automation and labor is a huge business decision. The initial capital investment to implement automation can be massive. Also, automation or robotics can make scaling operations for peak season difficult because it locks operations into a specific process flow. This can result in a loss of agility to adjust for future throughput shifts.

Benjamin Conwell: “Every e-commerce retailer or fulfillment operator must land on which lane is a better fit for current and future operations. The math differs based on the nature of the items fulfilled, the delivery level of service, availability of capital, and variability in throughput. And having more automation doesn’t always equal a smaller labor force because it doesn’t necessarily replace human labor, rather it works alongside associates to make jobs safer and more productive. Automation also requires workers to perform maintenance, coding, and other tasks to keep the machines running smoothly”.

Last Mile

With consumers expecting faster delivery, e-commerce players must have operations deeper into urban and suburban areas. These last-mile facilities are where the truck arrives, packages are sorted and loaded into delivery vans or other vehicles for the last leg of the delivery journey. Infill and suburban logistics locations face several hurdles: finding an existing building with the right functionality or a redevelopment site with the right potential and obtaining community support and zoning to allow the extra traffic and noise that may be created by delivery vehicles. For building layout, a last-mile facility doesn’t commonly require a lot of dock doors and clear height. Among requirements are extensive parking areas for workers and (zero emissions) vans, and a large vehicle staging and loading room.

Demand for a variety of logistics facilities will continue to surge with growing e-commerce providing opportunities for investors and developers to build on. We need only look at our own shopping patterns to see why. Challenges remain for retail, supply chain, and real estate professionals when solving the logistical puzzle created by the current-day consumer.

Source: Cushman and Wakefield

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