E-Commerce: How Supply Chains Are Catering To Online Demand

E-commerce has become a force in the retail and industrial sectors, and supply changes are being envisioned from the ground up to cater to online retail. 

Given the explosive growth in the sector—15% to 20% per year for the past several years—Bisnow spoke with Prologis head of research Chris Caton to better understand the emerging trends in e-commerce supply chains and what it means for industrial real estate.

“It’s critical to recognize that e-fulfillment models remain fluid and continue to evolve,” Chris tells Bisnow. "While the industry is in flux, some themes do appear to be emerging. For one, companies are increasingly favoring locations within or adjacent to major population centers to save on transportation costs and reduce delivery times."

The importance of location is driving a flurry of infill development in high priority areas.

Since 90% of e-fulfillment costs are for transportation, firms appear to be paying more for real estate and are spending additional funds to renovate and upgrade existing buildings in an effort to reduce transport costs.

“Today, logistics real estate users seem to be more price inelastic—willing to pay premium rents for premium locations and facilities,” Chris says.

Ultimately, the competition for being as close to the customer is critical in online retail. While rents for infill logistics facilities can be twice or more than facilities in more distant locations, they are still a discount to infill office and retail rents in prime areas.

Chris stresses that supply chain reconfiguration is essential to improve efficiency in not only e-fulfillment but other business types.  Helping these clients remains his focus as the industry evolves. “The Class-A market is where the action is, and where our portfolio is focused,” he concluded.