In 2016, demand for warehouse space reached a record high as shippers continued to expand their operations, or adapt to the changing e-commerce and fulfillment environment1. In 2017, low interest rates, consumer spending and growth in e-commerce will continue the trend for a strong year in the warehousing industry. This year, the distribution industry will continue to evolve in response to the high demand for warehouse space.
E-commerce Growth Fuels Demand
E-commerce continues to expand and is expected to reach $27 trillion of sales in 20202. This growth is not only driving shippers to rethink their distribution location strategy, but also opt for more space. E-commerce fulfillment space takes up far more room than a traditional pallet business. E-commerce companies are storing more inventories in more locations to improve speed to market. This growth in inventory and demand for space has many shippers strategizing and planning far in advance for surges and seasonality. In response, Fitch Ratings believes that retailers are more likely to pay a premium for more efficient fulfillment space3.
Development – A Slow But Custom Solution
An overall tight demand in the real estate market will continue to drive distribution companies to offer more space options for customers through further expansion with new facility openings. There has been a construction boom, however the facilities aren’t being built quick enough to fully meet demand4. Craig Meyer, President of JLL’s Industrial group, noted, “With many new constructions still trailing demand, not only will we see ground up development across major markets, but we will see creative and adaptive re-use of assets, a rise of infill development, and the introduction of multistory construction in or near urban locations5.” The benefit of development is that retailers can work with a 3PL to build a custom facility that can provide flexibility for future growth.
Location Is Still Key
Similar to previous years, both importers and exporters continue to invest in locations in close proximity to ports. However, shippers are also looking for space where they can reach a population of their customers in a short amount of time. In the United States, port cities continue to develop, while in Canada, Toronto and Vancouver continue to see aggressive growth6. In response to customer demands and available space, shippers may begin to utilize more last-mile facility solutions to improve their customer service7.
Recent talks of infrastructure improvements have many hopeful that their supply chains will see benefits of improved transportation. William Mahoney, SVP at NFI, shared his insight into 2017 stating, “Tightened capacity and increased demand will continue to drive 3PL providers to continuously improve and develop solutions to meet each customer’s unique challenge.”