Logistics Real Estate, the Fast Follower
The modern supply chain is lopsided. Whereas we may have once considered the supply chain as beginning at the point of production, we now start planning with the end consumer and work backwards from there. That’s why the term “last mile” exists and why we set forth in our previous research paper, to define a new lexicon to describe the different types of logistics real estate that would correspond to companies’ supply chain needs.
Considering a building’s location versus its functionality, our analysis centered around questions of delivery times, income/consumption, and building design features, and we determined the following four categories:
- Last Touch® properties can reach large dense, affluent populations within hours. These buildings typically are the oldest and smallest, because they are in very infill locations
- City Distribution properties are well-positioned to provide one-two day shipping to an entire large market. These buildings tend to be small to mid-sized and located in urban areas
- Multi-Market distribution facilities must have the right balance between location and functionality. These buildings tend to be newer and larger and located at key transportation hubs at the periphery of major urban areas
- Gateway facilities are multi-market buildings that incorporate access to major sea and intermodal ports
With these new definitions in mind, it’s clear the connection between the flow of goods and logistics real estate. In the 1990s, for example, when globalization took hold, demand for Gateway and Multi-Market properties surged as domestic supply chains lengthened. Today, consumer demands have increased, congestion has grown, and little new product has come online in urban locations. This has caused a ripple effect with logistics real estate -- rents for Last Touch and City distribution facilities are 2-3x those in peripheral locations.
As e-commerce forces the supply chain to skew even more to the end consumer in the years to come, how will logistics real estate respond? Supply chains have changed to accommodate the expedited movement of goods and rising consumer expectations. Will logistics real estate adapt as well?