DSTs and the Evolution of eCommerce

With eCommerce being one of the few winners to emerge from the pandemic and attendant lockdown, there has been a significant increase of interest and demand for industrial (warehousing) properties.

As mentioned previously, the coronavirus crisis acted as a huge accelerant.  It accelerated or brought forward parts of the virtual economy that might otherwise have taken a decade or more to emerge.  Nowhere is this more true than in retail.

Shopping on-line exploded with its annual growth rate accelerating from +1 – 15% range to 44.5% (real insight).  And while this may appear to simply be an extension of something already in place, it’s actually significantly more.  It has actually introduced a new trend that is just developing; same day delivery. 

Initially, eCommerce calling card was price and ease of access.  With a single stroke of your keyboard, mo’ betah stuff could be found at lower prices.  However, availability and pricing are no longer adequate to satisfy most consumers; we must have it now.  Thus, same day delivery was born.

In hindsight, this is a logical outgrowth of our immediate gratification culture.  However, it also contains profound implication as to what type of industrial real estate may be most desirable in the future.

This is because there is a distinction to be made between the large regional distribution centers or hubs and the smaller “last mile” facilities.

Early on, development of eCommerce distribution centers was focused on large tracts of land available almost exclusively in ex-urban markets.

However, as we transition out of the pandemic the eCommerce growth may decelerate somewhat. After all, human beings are social animals.  If this proves to be the case, demand for outsized regional centers may slow.

With consumers new demand for same day delivery, development could very well shift to “last mile” distribution centers.

It is best to think of this in the context of a hub and spokes.  The hubs may be largely completed.  Now it’s time to provide all the spokes.  In a way, this will resemble urban in-fill.  Instead of large tracts of vacant land in the exurbs suitable for development, this might mean the repurposing of existing suburban and urban structures.

Instead of creating new avenues to ever more distant points, it will be a movement to fill voids in existing hub and spoke delivery networks in an effort speed up same day delivery to consumers.

By definition then, these facilities must exist in much closer proximity to consumers than the first generation of industrial properties.

As such, they may play an important part in the repurposing of existing, surplus bricks and mortar retail space.  This should be particularly true where vacant, big box retailers now stand.

It is indeed ironic that the principal causal agent of traditional retails demise may eventually rescue its landlords.

Be that as it may, where industrial property investment is concerned, it is important for DST investors to keep this trend in mind.  When looking at Amazon, FedEx or UPS et al properties for 1031 exchange replacement purposes, thin “last mile.”  Look for possible redevelopment plays closer in.  This is likely where future demand will be and corresponding appreciation.


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