Fulfillment Centers Give Industrial Sector a Boost
Throughout the country, distribution centers are receiving an image makeover and giving the commercial real estate industry a boost in the process, according to the latest commercial real estate news reports. In fact, industrial property demand has increased so much that vacancy rates have declined to below levels last seen prior to the recession.
Driving the demand for fulfillment centers is the trend among retailers to stay ahead of the competition by establishing multiple points of purchase in stores and online. This process, known as omnichanelling, is designed to reduce supply chains. In response to this trend, developers breaking ground on a nearly daily basis, producing new properties on a speculative basis, primarily in large markets where vacancy rates have fallen into the single digits.
Large population areas have proven to be ideal for the development of new buildings in this sector, as they provide the ability to establish centers that offer straight-to-consumer deliver instead of the traditional hub that was comprised of multiple points.
Over the course of the next year, the majority of delivered fulfillment centers will exceed 350,000 square feet in space. Construction activity has increased significantly through most major industrial markets in the United States, according to a report released by CBRE. For instance, in the Dallas/Fort Worth area, there is more than 18 million square feet of space under construction. Chicago follows with more than 10 million square feet of space under construction. Atlanta currently has more than 6 million square feet of space under construction.
While the demand for industrial space has certainly grown over the last several months, it still wanes in comparison to a decade ago. Before the onset of the recession, the U.S. market added approximately 50 million square feet of industrial space per quarter. During the second quarter of 2014, only about 25 million square feet of industrial space was added. Even so, demand for industrial space, fulfillment centers in particular, is still on the rise and construction is growing in response to that demand. Amazon may have been the first retailer to launch the fulfillment center trend, but other retailers have caught on fast and are quickly following suit with rapid expansions of their own. Most expansion decisions were made as much as two years ago. During the interim, businesses have worked toward pursuing the financing necessary to fund those expansions. Today, the industrial sector is seeing the fruit of those labors.
Along with Dallas/Fort Worth and Chicago, other large population centers where warehouses are expected to soon dominate the landscape include New Jersey, Houston, Baltimore, Philadelphia, and Phoenix. Overall, the top six markets in the country during the second quarter in terms of construction activity were Dallas/Fort Worth, Houston, Phoenix, Chicago, and Columbus. The Inland Empire rounded out the top six.
Ultimately, many companies are not so much focused on simply delivering same day packages, but are working toward establishing a chain of fulfillment centers that will allow them to deliver the same day as well at the lowest cost.