The Best Last-Mile Warehouses Are Off The Market, But Grocers Are Still Hungry For The Leftovers

Consumers want alternatives to traditional in-store grocery shopping, like delivery and in-store pickup. Those new options require grocers not only to expand their existing supply chains, but also to build new distribution and fulfillment centers. Grocers are scrambling for industrial space, and with the majority of Class-A cold chain warehouses occupied, they are forced to build new spaces or find themselves scrounging for leftovers.

“In urban areas with dense populations, many companies are just taking what they can get for real estate,” Ware Malcomb principal Cameron Trefry said. “Most of the large, purpose-built cold storage warehouses are already taken, but these grocers still need more space. We’re seeing buildings that have never held food before being bought up, retrofitted and occupied at an astounding rate.”

Demand for industrial space has outpaced new construction for nearly a decade. That imbalance has only gotten stronger thanks to the growth of e-commerce. Grocers are feeling the crunch for warehouse space acutely — online grocery purchases are predicted to quadruple within the next five years.

Trefry said grocers are not pivoting away from storefronts toward a fully online strategy. Instead, consumers expect grocers to offer them a wide array of purchasing options, including home delivery and in-store pickup.

To serve customers on all fronts, Trefry said, grocers need to expand their existing supply-chain warehouses, find new fulfillment and distribution centers to organize delivery, and grow their storefronts to make room for in-store pickup. And because of the perishability of the goods they transport, grocers need to be conscious of the cold chain and, above all, close to their consumers.

“Everything is being driven by location,” Trefry said. “Every space along current trucking routes is being looked at as a possible logistics space for grocers, even old masonry buildings from the 1950s or disused gas station service centers if the location is right.”

These spaces often have footprints of only a few thousand feet, with clear heights of sometimes only 16 feet. This small format would be unthinkable for many of the purpose-built grocery warehouses of today. But it works fine for a high flow-through warehouse with little or no racking that will be serviced by a fleet of box trucks or vans rather than tractor-trailers, Trefry said.

Even if a grocery finds an appropriately sized space, it still has to work to make it suitable for storing food. These spaces may need to conform to U.S. Department of Agriculture and Food and Drug Administration regulations, Trefry said, and retrofitting them for grocery use is no easy task.

Industrial space — and purpose-built cold-storage space — is coming to the market, as are new innovations for logistics. Trefry said that multistory warehouses could bring a novel solution to the crunch for grocery space, especially within the urban core, but cautioned that these spaces will be in extremely high demand.

“We have developed a multistory warehouse prototype for e-commerce distribution, and grocery could certainly fit into it,” Trefry said. “But the owners and developers of these multistory warehouses are going to expect large returns for expensive investments in land. Grocers are already moving to these smaller-format industrial locations, so multistory warehouses may not be where the industry is heading.”

Trefry will be speaking on a panel on grocery’s last mile, the evolution of consumer habits and innovations in industrial design at NAIOP’s I.CON West 2019, June 5-7 in Long Beach, California.

This feature was produced by Bisnow Branded Content in collaboration with NAIOP. Bisnow news staff was not involved in the production of this content.