When the Supply Chain Ends at Your Doorstep, It's Time to Adapt

July 23, 2019 • Melinda Mclaughlin

Logistics real estate used to be back of mind. Warehouses and distribution centers were planted in remote locations, where costs for land, labor and taxes were low. Today, thanks to e-commerce and rising service level expectations, shortening time and distance to consumer populations is more important than ever. Next-day delivery is evolving into same-day and one-hour delivery.

In this environment, consumers have put the makers, movers and sellers of goods on notice, and last century’s warehouses have evolved into technology-rich logistics facilities. For a growing number of companies, these assets already perform many of the functions of a store.

In fact, more retailing activity is taking place inside distribution centers. They’re highly varied in purpose and intent and deploy technology to meet rising customer service expectations. 

The resulting implications for logistics real estate are clear:

  • Import centers. These facilities act as the initial stop for global supply chains within large geographies or as receiving facilities from domestic manufacturing sites. They are located near global trade hubs and can either distribute to surrounding populations or act as a deconsolidation point serving other logistics facilities.
  • Regional distribution. The growth of decentralized networks of regional distribution centers, as opposed to centralized distribution models, allows retailers to keep inventory closer to the end consumer and meet ever-shortening delivery times. This high through-put demands that facilities incorporate modern design features.
  • Last-mile and city distribution. E-commerce has energized demand for properties in urban locations, enabling rapid e-fulfilment and time-sensitive distribution. Last-mile facilities are an extension of established supply chains, not only taking goods to retail centers, but also facilitating delivery to where consumers live and work. In addition, these locations offer proximity to other customers/suppliers and an ample workforce.

While every supply chain is different, requirements from big brands like Amazon and The Home Depot often will span the entire supply chain, while smaller companies like meal kit company HelloFresh will rely more on last-mile properties, such as Prologis’ own Last Touch® assets. Meanwhile, third-party logistics and parcel delivery companies like UPS and FedEx also are jostling to position themselves in key locations.

Property managers are on the front lines of this phenomenon. The changing demands of customers means property managers must adjust to widely variable space needs, keeping in mind the costs of supply chain modernization. They also must educate themselves on the capabilities of a building, the equipment a customer might need and how technology can serve the supply chain.

According to a new report from commercial real estate firm CBRE, demand from e-grocery and meal kit sales will lead to development of up to an additional 100 million square feet of cold storage space over the next five years, an increase from a current 214 million square feet. Yet, today, due to rising costs and the technology involved, most cold storage capacity in the United States is outsourced.

As a property manager, it may be in your best interest to align with these vendors to maintain cold-chain integrity throughout delivery. Property managers also must stay on top of new technologies, such as energy-efficient lighting, product movement and tracking systems and autonomous forklifts, to ensure they are providing the best options for their customers.

Real estate has never been a particularly flexible business—huge amounts of capital get tied up in multiyear leases that don’t easily expand or contract. As businesses adapt their supply chains to secure a competitive advantage, property managers become customer care providers, continually looking for ways to improve operations.

ABOUT THE AUTHOR: Melinda McLaughlin is vice president of Research for Prologis.

This article was originally published in the July/August 2019 issue of BOMA Magazine.