Same-day delivery demand drives last mile distribution

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March 27, 2017

By: Jason Ovadia, Managing Director, JLL

Annual e-commerce sales reached almost $2 trillion worldwide in 2016 and could reach $4 trillion in 2020 if double digit growth projections through the rest of the decade are accurate. Currently accounting for almost 9 percent of total retail spending worldwide, that share could top 15 percent if 2020 projects prove accurate.

As more retail sales move to online and mobile platforms, the real estate focus switches from an emphasis on retail storefronts to logistics and delivery.

Speed of delivery

A growing acceptance of online ordering has prompted a desire among consumers to receive goods faster, even on the same day. That’s especially true here in the Bay Area where Generation Xers and Millennials – e-commerce’s prime customers – form such a high percentage of the population.

This is a major reason why industrial real estate in the Bay Area’s primary logistics markets – the North and East Bays, Silicon Valley and Mid-Peninsula have seen such an uptick in “last mile” deal activity – distribution warehouses that receive and send out goods ordered online. And that has pushed up lease rates. According to JLL’s report on E-commerce in the Bay Area lease rates for last mile distribution facilities have risen 8.4 percent in the last two years and a whopping 43.8 percent since the last market trough in 2011.

Outliers

Warehouse-distribution markets around the Bay are tight, making it tougher for distributors to find the right location at the right price. Occupiers should consider infill locations and new construction – as well as emerging distribution markets such as Richmond, Livermore, Solano County and the Central Valley – over more traditional locations where prices are higher and inventory is at all time lows.

Investors and landlords with state of the art product (ample parking, high cubed storage capabilities, maximized dock loading) in areas with favorable traffic conditions and few restrictions on trucks as well as access to a qualified labor force, are sitting pretty at the moment but they should also have an eye on outlying markets, both as development opportunities and potential competition.

About the author:

Jason leads Northern California industrial business for JLL, serves on the Industrial Executive Committee and Supply Chain & Logistics Group. He provides strategic solutions to corporations, institutional owners, developers, REITs, logistics providers and transportation companies–helping them improve speed to market, provide cost and risk reduction and maximize location and labor requirements.

Contact Jason directly by phone at +1 510 285 5360 or by email at jason.ovadia@am.jll.com.

 

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