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In Focus: An Evolving Last Mile

The landscape of industrial last-mile facilities and distribution centers is expanding and diversifying.

Q3 2020
Apart from the tragic global health implications, the economic fallout from the ongoing novel coronavirus pandemic has been highly disruptive. The longer-term impact from the profound behavioral shift on the part of consumers who have — by necessity — been introduced to online shopping will persist long after the current recessionary cycle ends.

While some new online shoppers will go back to their pre-COVID habits once the pandemic is behind us, many will be “sticky,” finding the convenience of online shopping too alluring. One recent survey finds that 46 percent of shoppers currently plan to continue buying online.

From curbside and in-store pickup to home delivery, the growth of online retail was already well under way before the current crisis. The overall volume of e-commerce sales nearly doubled over just six years, rising to 11.2 percent in 2019.

Pandemic-driven shifts in consumer preferences and priorities may prove to be a tipping point: supercharging steady growth into a transformative cycle where old assumptions no longer apply. In conjunction with in-store experiences that have been dramatically altered by health and safety concerns, it’s not hard to see why these changes might stick.

It’s not just the increased volume of sales to keep an eye on, but the likelihood that online purchasing growth will extend into retail sectors that previously comprised a small piece of the digital commerce puzzle, like commodities, groceries, autos, and luxury. Online grocery purchases currently account for just 3 percent of all U.S. grocery sales. That figure is almost certain to rise dramatically in the years ahead.

An Evolving Business Model
What impact will increased volumes and newly active online segments have on the already expanding and evolving business model for fulfillment and distribution centers? In recent years, the renewed interest in industrial properties and the expertise required to identify, facilitate, and develop last-mile infrastructure have grown significantly. The market for last-mile uses continues to grow, and the nature of both build-to-suit and redevelopment/repurposing projects continues to evolve. Fulfillment and distribution centers have already become a more prominent feature on the commercial real estate landscape and are proving to be one of the more durable segments of a hard-hit industry.

Pandemic-driven shifts in consumer preferences and priorities may prove to be a tipping point. Current circumstances suggest we are on the cusp of a more fundamental transformation in the traditional supply chain, and the implications for that are potentially profound. Last-mile delivery is becoming increasingly relevant and integral, and facilities that currently distribute to brick-and-mortar retailers may now offer independent last-mile servicing. With more brands and businesses embracing an omni-channel approach, brick-and-mortar operators will be developing their own in-store and stand-alone infrastructure.

The result will be a more diverse range of properties and facilities, many of which will be integrated into retail and mixed-use environments. We are likely to see many creative solutions that blend retail and industrial spaces in new ways. An article in National Real Estate Investor suggests that grocery uses may have a particularly noticeable effect on the design and function of new distribution and fulfillment center models — including those “designed for final-mile order delivery in dense urban corridors.” From greatly expanded cold and freezer storage facilities, to dedicated space in or adjacent to retail stores to accommodate greatly expanded online fulfillment and delivery, grocery is poised to be an impactful change agent.

While no one knows exactly what the post-COVID online marketplace will look like, and specific distribution solutions will vary depending on market, model, and segment specifics, it’s clear that the future of retail and the future of distribution and fulfillment centers are profoundly — and increasingly — interconnected.

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