Most Read Articles
The future of last-mile logistics takes shape
The push to get products closer to consumers is changing the logistics landscape, especially in densely populated urban areas where congestion, limited space, and high real-estate prices make it difficult to tackle last-mile delivery challenges. Despite the obstacles, trends are emerging in the commercial real-estate market that highlight two very different approaches to urban warehousing and fulfillment on the rise today: increasing interest in larger, multistory facilities that leverage advanced technology and vertical space configuration, and growing demand for small, light-industrial properties of less than 120,000 square feet. Although the approaches are different, the end-game is the same: to meet increasingly fast delivery expectations in the most efficient way possible.
"Delivery is the 'new wave' for fulfillment," Andrew Chung, founder and CEO of industrial developer Innovo Property Group (IPG), explains, emphasizing the effect of e-commerce on the warehousing and logistics landscape. "It's kind of like how Amazon changed the way that people shop. Now, [e-commerce is] changing the way that goods get delivered. [And] that's changing the infrastructure in general."
The development of a handful of high-profile multistory warehouses in large urban markets combined with a tighter market for light-industrial properties offers a glimpse of the evolving marketplace.
IPG is developing a large multistory last-mile facility in the Bronx to help shippers meet e-commerce delivery demands in the New York City area. Slated to open in 2021, "2505 Bruckner" is one of a few big projects making industry headlines as the race to conquer urban delivery heats up, and Chung says the unique facility represents a transformation of the supply chain.
"In logistics, it's all about how long it takes to get from one place to another," Chung says, pointing to the cost advantages and efficiency of delivering more products to urban populations from a single, centralized location. "Supply chains need to be adjusted for the new way that goods are being transported and [orders] fulfilled to customers."
For Chung and others, multistory makes the most sense for meeting those demands. The 2505 Bruckner facility will be situated on 20 acres in the Bronx, at the intersection of five major truck routes that can access more than 9.4 million people in a 15-mile radius, reaching consumers in Manhattan, Queens, Brooklyn, Long Island, Westchester County (New York), and Connecticut. The 980,000-square-foot building is being developed on a large site that previously housed a dilapidated movie theater, a unique opportunity in an urban setting, Chung admits, noting that "such a large tract of land in an urban environment is virtually impossible to find."
The design features a two-level structure built to meet the needs of a modern warehousing and fulfillment operation, with ceilings that can accommodate modern vertical racking systems—up to 32-foot heights—and truck and trailer access on both levels. Ramps will allow delivery trucks to access an elevated truck court on the second level, for instance. Ample parking is another key benefit; the site will include eight trailer parking spaces, 125 box-truck parking spaces, and 730 car spaces.
IPG is set to break ground on the facility this year and has two other such projects in the works. Running roughly 12 to 18 months behind the 2505 Bruckner schedule, IPG's two additional multistory facilities will be located in Long Island City, New York.
Melinda McLaughlin, head of U.S. research for logistics real-estate development firm Prologis, agrees that there is a growing need for modern high-tech facilities in urban areas as supply chains shift, and she says new development and reuse of existing facilities will continue. Prologis opened "Georgetown Crossroads," a 580,000-square-foot three-level facility, in Seattle in 2018 to serve city distribution and last-mile delivery needs in the region. The facility was the first modern multilevel industrial facility of its kind in the United States—featuring truck access ramps and forklift-accessible freight elevators to reach the upper levels. Prologis also renovated a retail site and redeveloped it as "Prologis Bronx," a smaller-scale, two-story facility being leased by Walmart e-commerce subsidiary Jet.com.
"Modern properties [in dense urban areas are] very rare, but we've seen some really strong demand for those properties as supply chains get closer to end-consumers," McLaughlin explains, adding that the benefits of a large modern facility that can easily reach millions of people can outweigh the associated higher real-estate costs. "The functionality they can bring is increasingly valued."
SMALL IS IN DEMAND
Last-mile facilities (or "last touch," as Prologis refers to them) in urban areas tend to be located in smaller, older buildings, and even those that are "less functional" are nevertheless in demand because they are the best place to service the urban end-consumer, McLaughlin explains. The market is seeing high demand, limited new supply, and strong rent growth for such facilities.
A report from commercial real-estate firm CBRE showed that demand for "well-located, small light-industrial properties" continued to outpace demand for larger warehouses during the first half of 2019, for instance. The firm found that urban facilities with 70,000 to 120,000 square feet remain in high demand because of increasing economic activity, urban population growth, and consumers' same-day delivery expectations. The availability rate for such facilities has dropped by nearly four percentage points to 7.4% over the past five years, the firm said, while their rents have climbed more than 30%. In comparison, warehouses of more than 250,000 square feet saw rent growth of 16% during the same period. CBRE said strong demand for smaller warehouse properties will continue "as retailers and logistics operators expand their networks to increase their proximity to consumers."
NEW TERMS FOR NEW TIMES
In the meantime, the shifting landscape calls for a new way of defining logistics real estate, according to McLaughlin—one that creates a clearer picture of the different types of facilities companies are using to meet changing service-level expectations. Prologis has created a model of what it calls "the modern supply chain" that goes beyond traditional property definitions such as "warehouse/distribution" and "flex" to identify facilities based on where they are used, how they are used, and what they look like. The goal is to develop a common language and a standardized way to talk about the different functions buildings play along the supply chain, she says. "Last touch" is one of four categories the company has developed; the others are "city distribution," "multi-market," and "gateway."
As McLaughlin explains, the Prologis model defines the four types of logistics properties as follows:
- "Last-touch"properties can reach large, dense, affluent populations within hours. These buildings typically are the oldest and smallest, because they are in infill locations.
- "City distribution"properties are well-positioned to provide one- to two-day shipping to an entire large market. These buildings tend to be small to mid-sized and located in urban areas.
- "Multi-market" distribution"facilities must have the right balance between location and functionality. These buildings tend to be newer and larger as well as located at key transportation hubs at the periphery of major urban areas.
- "Gateway"facilities are multi-market buildings that incorporate access to major sea and intermodal ports.
In addition to creating a common language, the framework helps put the changing logistics landscape into perspective, providing a snapshot of the different puzzle pieces required to get goods through the supply chain as quickly and efficiently as possible. For his part, Chung says he expects the evolution to continue, noting that the changes occuring in logistics infrastructure are "not a one-off twist."
"It's the start of a transformation of logistics and supply chain," he says.
Join the Discussion
After you comment, click Post. If you're not already logged in, you will be asked to log in or register.
We Want to Hear From You! We invite you to share your thoughts and opinions about this article by sending an e-mail to ?Subject=Letter to the Editor: Quarter : The future of last-mile logistics takes shape"> . We will publish selected readers' comments in future issues of CSCMP's Supply Chain Quarterly. Correspondence may be edited for clarity or for length.