By Michael G. McGuinness
E-commerce, today’s retail model, is growing rapidly, as products and technology evolve and consumers come to rely on the ease and convenience of online shopping. In addition to its much-talked-about impact on the overall retail picture, e-commerce has been a key driver for industrial real estate, especially in those well-situated locations that facilitate a speedy and low-cost way of delivering goods to consumers.
In many ways, industrial real estate is becoming “the new retail” due to the growing demand for space for fulfillment centers, distribution centers and alternative drop-off locations. New Jersey is in a sweet spot due to its medial access to a huge and relatively wealthy consumer base, enhanced by our attractive ports and extensive network of rail and highways. Our public officials, however, need to recognize that this competitive edge could easily slip away if we are not diligent about nurturing this “golden goose sector” of the state economy. As a more mature market, the Garden State faces some unique challenges when it comes to managing current supply chain issues, such as compressed delivery times and expanding delivery options. Here is a look at how some of the top e-retailing trends are impacting the industry.
THE LOCATION OF FULFILLMENT CENTERS IS MORE IMPORTANT THAN EVER
Because transportation and labor costs represent such a large share of the cost of doing business, e-commerce companies must consider the total operating costs for a new facility, not just the price per square foot. Even with a reasonable rent, e-retailers have no use for a fulfillment center in a remote location or one that lacks access to the necessary resources.
This has fueled ongoing demand in New Jersey for sites that meet key criteria for e-commerce operations, including proximity to a diverse labor pool, easy access to and from regional highway networks, multiple site access points and adequate truck parking located away from buildings to maximize the number of docks. Again, New Jersey’s access and location makes us very competitive.
E-COMMERCE COMPANIES ARE LOOKING TO “GET LOCAL”
As the demand for next- and same-day service heats up, “getting local” with inventory is critical for e-retailers, who are increasingly looking to shorten the distance between where inventory is stored and where items are delivered, while investing in distribution facilities that are strategically located close to population centers.
E-commerce firms seeking space in New Jersey may consider a larger warehouse in an infill location ideal, but such properties are few and far between. This creates opportunities for owners of older, smaller warehouse properties that may not be as attractive, but are well-located. In fact, the industry is responding to increased demand for smaller distribution centers situated close to metropolitan areas that are designed to move product quickly. This trend may present a challenge in the long term: As these leases come up for renewal, it remains to be seen whether the tenants will still have a need for large bulk warehouses — of which New Jersey has plenty.
DEMAND FOR TEMPERATURE-CONTROLLED WAREHOUSING IS GROWING
The increased demand for temperature-controlled facilities is not only due to the popularity of fresh food delivery services. According to Anne Strauss-Wieder with the New Jersey Transportation Planning Authority, ambient conditions required for the storage and delivery of products ranging from pharmaceuticals to electronics is leading to an expansion of specialty warehousing in New Jersey, particularly near the port region and urban areas.
Examples include national firm Preferred Freezer Services, which is currently building its ninth ultra-modern New Jersey warehouse in Elizabeth. Meal delivery company HelloFresh opened facilities in Linden in 2015 and Newark in 2016, and competitor Blue Apron is constructing a 495,000-square-foot fulfillment center in Linden slated to open this year. THE MARRIAGE OF ONLINE AND
IN-STORE IS CHANGING THE RETAIL LANDSCAPE
In their white paper, “The Promise of E-commerce,” prepared for the NAIOP Research Foundation, Curtis D. Spencer and Steve Schellenberg discuss the convergence of online and in-store distribution. They cite the “fulfillment from stores” strategy, in which brick-and-mortar stores double as e-commerce fulfillment centers, as one example of the ways in which traditional retailers are adapting to the new retail landscape. However, as overall demand for traditional stores continues to weaken, the future of malls in America is in jeopardy. At the same time, the emergence of omnichannel retailing, which offers customers a seamless shopping experience whether they are shopping online or in a physical store, as well as the success of lifestyle-focused retail centers, provides opportunities for suburban mall locations with good accessibility. Grocery- and health club-anchored malls are becoming the norm in New Jersey, as evidenced by Whole Foods and LA Fitness in Bridgewater and Clark, respectively, as examples.
LAST MILE DELIVERY IS TRANSFORMING COMMUNITIES
The growth of online purchasing is clearly causing a seismic shift in the supply chain’s efforts to quickly get goods into the hands of consumers. New Jersey’s real estate landscape will continue to change as businesses and communities adapt to meet increased demand, not just from individuals, but from businesses and institutions across the state.
For instance, current and future changes in last mile delivery will impact zoning and planning decisions for municipalities. The increase in traffic on local streets, and the delivery vehicle parking challenges that local leaders already face, are just the tip of the iceberg.
Multifamily developers must also consider providing access to and creating designated locations for delivery vehicles. On the flip side, new alternatives to at-home delivery, such as package lockers and storage facilities, may offer older towns in central locations a chance to reinvent themselves. The future of e-commerce is virtually limitless, leaving little doubt that it will continue to provide opportunities and challenges for New Jersey.
One thing is for sure: Industrial real estate stakeholders need to be sufficiently nimble and flexible to accommodate rapidly changing user needs.
Michael McGuinness is CEO of NAIOP New Jersey and has guided the commercial real estate development association’s progress since he joined the staff in 1997. In addition to overseeing daily operations, programs and staff, McGuinness directs the chapter’s legislative activities and manages the Developers Political Action Committee (DPAC).