E-Commerce Driving Demand For Smaller, Urban Distribution Centers

While large distribution centers traditionally are found in the outskirts and suburbs of large cities and in small towns, real estate research shows a growing trend of distributors and retailers putting small DCs closer to population centers.

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In today's world of e-commerce in industrial distribution, speed and mobility are key. Just like how any customer who orders a blender from Amazon.com expects it to be on their doorstep two days later or less, businesses ordering industrial products now expect the same speedy service from distributors.

As the pace of b2b continues to transform distribution trends, it appears one of them is in the distribution centers themselves. New data from real estate firm CBRE Inc. shows that demand for industrial facilities under 200,000 square feet in urban areas is on the rise.

Traditionally, large distribution centers have been located in suburbs and small towns, where property and labor are cheaper than large cities. But with end users growing more reliant on 1-2 day, or even same-day delivery, distributors and retailers have had to find ways of moving products to them faster.

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David Egan, CBRE’s head of U.S. industrial research, told the Wall Street Journal, “You need to expand and make your supply chain much more complex if you want to be able to promise and deliver on that same-hour, same-day or overnight delivery everyone is coming to expect.”

One of those growing ways retailers/distributors are moving products, CBRE has found, is by snatching up smaller distribution facilities in urban "light industrial space," keeping their logistics network mobile, and perhaps cheaper.

These facilities are often in older industrial buildings where location is the big factor instead of a priority on the latest, greatest machinery found in large warehouses. CBRE's research found that such urban light industrial property has more availability than the increasingly tight market for large industrial facilities, and for relatively reasonable rents.

CBRE reported that industrial real estate demand has pushed rents to near pre-recession levels, growing by 1.3 percent in Q2 2015 and nearly 3 percent so far this year. The firm expects 3.2 percent of additional growth through the end of 2015, which would bring rents to within 4 percent of the previous cycle high.

CBRE analyzed 44 neighborhoods prone to probable online shoppers across 14 major metropolitan areas and, according to the report, found that Atlanta, Boston, Chicago and Philadelphia offer ample access to both e-commerce customers and light industrial space choices.

The practice of adding smaller, urban distribution centers certainly suits retailers of consumer products, but what about distributors of valves, cutting tools, welding equipment, safety products and other industrial products?

Mike Hockett, Managing EditorPopulation centers may be more for the retail crowd, but what CBRE's research shows is that distribution centers can have a place there too, even if it's in smaller pieces than massive warehouses. Using smaller, urban DCs could be effective for stocking your most popular industrial products instead of feeling a need to include absolutely everything in your product catalog at every location.

Consumer retailers have begun using crowdsourced delivery services such as Deliv, or even Uber-like rideshare services that allow ordinary citizens to drive packages to destinations. Those services go hand-in-hand with brick-and-mortar retail stores in population centers. But most those packages are delivered to an individual person, whereas industrial B2B orders are going to other businesses. I have yet to see any industrial distributors jump on the bandwagon of those delivery services, but that's not to say it won't eventually happen.

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