By Ignatius Armenia
With e-commerce fulfillment increasingly becoming one of the strongest drivers of industrial real estate, the need for warehouse labor has also increased dramatically. This trend, combined with a decreasing unemployment rate, has forced up labor costs for many e-commerce operations.
GROWTH OF E-COMMERCE FULFILLMENT
Northern and Central New Jersey have seen e-commerce leasing activity jump from under 400,000 square feet in 2010 to more than 6.3 million square feet in 2016, with Amazon.com now the largest occupier of industrial real estate in the state. On a national level, e-commerce was the third most active industrial sector from 2010 to 2014, accounting for 16.1 percent of all “big-box”* transactions.
However, over the last two years, e-commerce has become the most active sector, representing 22.5 percent of national leasing activity.
Despite significant automation, the e-commerce industry’s effect on demand for labor has been magnified by its heavy employee counts and severe seasonal spikes as compared to nonfulfillment-driven operations. More traditional warehouse facilities, which replenish retail stores and distribute wholesale goods, have an average employee count of one per 1,500 to 3,000 square feet. Meanwhile, large-scale e-fulfillment operations typically have an employee count of one per 700 to 1,000 square feet. As a result, e-commerce-focused leasing can drive local demand for labor at a rate two to three times that of traditional warehousing operations.
With the unemployment rate in New Jersey at 4.7 percent at the end of 2016, employers are forced to compete for qualified labor. The rise of e-commerce and the need for large-scale distribution facilities have exacerbated this effect. A dwindling supply of labor has forced traditional warehouse and distribution employers to compete on wages for employees with large fulfillment operations, which can often offer well-above-average hourly wage rates.
E-FULFILLMENT IMPACTS ON LABOR MARKETS
The combined impact of considerable leasing activity from e-commerce-related operations and a constrained supply of available labor has increased wage rates for warehouse labor at a faster rate than the average for all other occupations. On average, industrial markets with elevated levels of e-commerce leasing activity saw the median wage rates for laborers and freight stock employees increase by 5.8 percent from 2013 to 2015; meanwhile, in the same geographic areas, wage growth for all occupations only increased by 2.7 percent. Similarly, throughout New Jersey, the median wages rates for laborers and freight stock employees increased by 4.5 percent, while the median wage rates for all other occupations only increased by 2.6 percent.
With the rapid rise of e-commerce and complexities coming from heightened consumer delivery demands, the resulting need for industrial facilities with atypically high employee counts has constrained available labor. As a consequence, “big-box” operations are required to compete on wages in order to fully staff their facilities, putting upward pressure on overall total landed costs. This increased competition has allowed warehouse wages in many industrial markets to increase at rates that outpace total employment wage growth in many major markets. With “big-box” leasing activity around New Jersey continuing to flourish, and expected to reach the levels seen in other major industrial markets, further wage growth for warehouse associates is expected to outpace that of many other employment sectors.
To be successful in these market conditions, going forward:
- Benchmark “who you are” as an employer.
- Access predictive labor analytics to see “who will you become” and how fast.
- Understand both the science (e.g., desktop data) and art (e.g., in-market experiences) of each labor market.
- Evaluate technologies (e.g., automation, LMS, etc.) to improve productivity.
- Prepare for change today.
*“Big-box” leasing includes all leases signed of at least 500,000 square feet or greater.
