Back to Blog

What Will The Distribution Warehouse Of The Future Look Like?

16 Dec 2015

E-commerce has revolutionized the international economy, and with it, the real estate market for warehouses. Online retail is growing at almost 20% per annum globally. We have become accustomed to purchasing a product at the touch of a button, with expectations that goods will arrive overnight. Companies like Amazon promise an endless diversity of products, which means an endless aisle of supply at the distribution center, requiring the consolidation of a massive and assorted supply of goods in a single or adjacent center.

What’s the result of these changes?

E-commerce companies are increasingly demanding expansive fulfillment centers — the distribution warehouse of the future. The larger the warehouse, the more “endless” the aisle can be, meaning that e-commerce companies are looking to purchase large contiguous blocks of industrial space to convert into distribution centers, particularly in Southern California. As home to the ports of Los Angeles and Long Beach – which together bring in nearly 40 percent of container traffic coming into the United States – our region is the largest gateway for products moving from Asia to North America.

E-commerce companies want to store these goods as quickly and efficiently as possible in state-of-the-art warehouses in our region. The only problem? With the e-commerce boom and the subsequent changes to the real estate market, land throughout the region is more expensive and more desirable than ever before.

The deficit of available land, combined with the changes that must be made to each facility retrofitted for e-commerce companies, means the cost of building, owning, and operating the warehouse of the future will be higher. We have watched this trend carefully for decades and, today, we are seeing the urgent need to retrofit, reorient, or build new properties to accommodate it.

The distribution warehouse of the future must be tailored to the unique requirements of the e-commerce industry. It must be truck-friendly, with large parking facilities, sufficient turning radiuses to make truck maneuverability as efficient as possible, have state of the art Early Suppression Fast Response (ESFR) fire sprinkler systems, as many loading dock doors as possible and high ceilings for maximum storage.

E-commerce companies want distribution facilities to be close to major highways and populated centers for easy access to both labor and trucks, and they need enough land and resources to accommodate the considerable amount of manpower, storage, and energy to perform cost-effectively at peak times.

Hager Pacific has been active investor in this space, recognizing the long-term value of the state-of-the-art distribution properties to serve the e-commerce industry. Last July, we bought a milk processing building with 44,000 sq. ft. built on five acres of land and converted the facility to a dry distribution house. The facility is fitted with high ceilings, efficient truck access, excess land for truck parking and has one truck loading position for every 2,000 feet of building. We have torn down interior walls to make room for the “endless aisle.”

By retrofitting existing facilities, as we have done with the milk plant, and constructing new facilities, the real estate market must begin planning for and building the distribution warehouse of the future. Accommodating these needs will not be easy, but remains critical for e-commerce companies looking to stay in synch with the emerging reality of the international economy.

This blog is produced as a resource for real estate investors by the senior management of Hager Pacific, which includes David J. Hager, Adam Milstein, Robert Neal, and Jason Schirn.

About the Author: Adam Milstein
Adam Milstein is a managing partner with Hager Pacific Properties, overseeing the firm’s financing, disposition and property management.