The growing demand for online shopping isn't only changing the way most Americans do their shopping, it’s also altered the face of industrial real estate in a major way. From the use of drones within distribution centers to the need for warehouses in urban spaces, we can safely assume that 2017 will be a big year for changes regarding the way industrial properties are utilized.
Retail Centers Are Turning into Warehouses
Big retailers are coming up with new and resourceful ways to compete in a market dominated by Amazon, and their shift towards a more online-friendly approach seems to be working. Target, in particular, has devised a new way to increase their market share in this Amazon-dominated market by transforming their brick-and-mortar stores into warehouses.
It seems as if their strategy has paid off, as their online sales significantly increased since they made the change; in fact, approximately 30% of the company’s online orders were managed in-store from customers who placed an online purchase and picked it up in the store.
Urban Warehouse Are the Newest Trend
Amazon Prime changed the nature of online shopping by presenting itself as a convenient, quicker way to shop online, but promising next-day and same-day delivery weren't things that were achieved overnight. They actually required Amazon to spend money investing in warehouse properties in and around major metropolitan areas across the country.
Called fulfillment centers, these fast-paced warehouses are strategically located in the urban areas where packages can reach nearby customers at a much quicker rate than inventory shipped from traditional warehouses. As other companies specializing in online shopping begin to do the same, we could expect to see a revitalization of urban industrial properties across the United States. This is especially true in Texas and West Coast cities, which are currently experiencing market growth in the warehouse sector.
Physical Distribution Networks Will Change
The way items are shipped across the country or halfway around the world will change as a result e-commerce. The industrial and warehouse sectors are expected to experience significant growth throughout 2017 and beyond as the need for super-sized distribution centers, parcel hubs, and delivery centers are built across the country. This trend is also taking off across the world in developing countries like China, India, and Russia, which is a good indicator that it’s less of a trend and more of a fundamental shift in retail distribution overall.
How This Trend Affects Investors
The current global trend suggests that the emergence of millennials into the workforce is one of the factors behind the increased online sales. This shift in the market has caused big box retailers and small department stores to both readjust their business models to compete with companies like Amazon.
For real estate investors, this translates into an increased demand for warehouse properties around populated areas, especially the cities that are that are attracting most of the young millennials who are entering the workforce for the first time. What this trend means for many CRE investors is that the warehousing sector appears to be one of the more stable markets to get into.