“Last Mile” Warehouses are Popular now, What are these?
Strong growth of these industrial facilities
The explosive growth of e-commerce has resulted in a race to reach consumers. Some retailers are offering one-day, same-day, even one-hour delivery in a bid to stay ahead of the pack.
How retailers fulfill this promise is through what’s known as “last mile” warehouse facilities.
The term “last mile” is used in supply chain management and transportation planning to describe the movement of people and goods from a transportation hub to a final destination, such as a person’s home. Therefore, when we talk about “last mile” warehouses, we’re referring to the warehouse located closest a final destination – even though most are not technically within one mile of a destination.
In fact, the distance itself is not the best indicator for delivery time. How long it takes to drive from the last mile facility to the consumer’s door is more important than actual mileage. Some urban locations have heavy traffic, resulting in delayed or difficult transfer of goods; others might be further away but have easier delivery. (That’s why it’s critically important for retailers, in their search for a last mile location, to work with a broker who has a deep understanding of transportation and local driving conditions!)
Nevertheless, the race to deliver goods faster has made these last mile warehouse facilities increasingly attractive among investors.
Most retailers don’t need fancy space to store their goods. Only a fraction need climate-controlled warehouse facilities. This makes Class B, C and D industrial buildings a great option for the majority of retailers. It costs less than Class A industrial space but still serves their purposes. The most critical component of last mile facilities is their ability to accommodate a large number of vans and delivery trucks. Investors have taken note, and are starting to buy previously obsolete industrial assets in droves. It has become a niche for institutional investors now competing for well-located industrial properties in urban locations; they’re purchasing entire portfolios are record-high prices.
This is becoming more the case on Miami’s Industrial market. Old warehouse facilities East of Miami’s International Airport are being looked as future development. One of them has already started with the demolition of an old Winn Dixie Facility to develop +/- 400,000 on brand new industrial space. Close to MidTown and Downtown Miami.
In another case, Boston-based Evergreen Industrial Properties sold a 16 million SF portfolio containing 150 light industrial facilities to Canada-based Ivanhoe Cambridge. The portfolio included assets in strategic infill locations in high-growth U.S. markets like Seattle and Denver, as well as properties near Atlanta, Chicago and Dallas, which are considered major distribution markets.
Another demand driver is the fact that so many properties that could have otherwise served as last mile warehouses have been redeveloped for other uses during this market cycle. In markets across the country, developers have repositioned older industrial facilities as residential lofts, mixed-use properties and creative office space. Orange County, California alone lost nearly 3 million SF of infill industrial space to other uses between 2010 and 2016.
In many cases, this has increased the value of big box retailers. Big box retailers, like Target and Walmart, are facing competition from online retailers like Amazon. However, big box retailers have something Amazon doesn’t – physical space. Many big box stores are leveraging their physical space and proximity to consumers and now double as e-commerce distribution facilities. Customers can purchase goods from a variety of online retailers and pick up those goods from a neighborhood Walmart without having to pay a shipping charge.
In urban locations, where land values and construction costs are high, it can be difficult to build new last mile warehouse facilities. In these markets, one of the only viable alternatives is to develop multi-story warehouses. Short of that, retailers will have to pay a premium for access to pre-existing last mile facilities.
As long as consumer demand for ultra-high-speed shipping continues, so too will investor demand for last mile warehouses.
Interested in learning more about last mile warehouse facilities? Contact us today to explore the options available. 786-433-2380 or Email Edison Vasquez