The industrial property subcategory 3PL, or third party logistics, is a rapidly expanding market across the US. Steady growth in e-commerce has created a growing dependency upon these warehousing and logistics properties thanks to their effect of reducing delivery time on goods shipped to customers. With e-commerce sales worldwide set to pass $2 trillion in 2017 in pursuit of double-digit annual growth, knowledge of the 3PL industry will pay off for the commercial real estate professional patrolling this piece of the national supply chain. What follows in this post are two helpful sources of quick information about the 3PL as it lives and breathes today.
Last month’s holiday season brought the seasonal retail push. Coast to coast, goods moved at peak volumes, as they do more or less every year. But the radical change brought to retail by online shopping technology has, more than ever, redrawn the landscape in all areas of retail, from customer-facing to logistics and everywhere in between.
A recent Jones Lang LaSalle report put the number of retailers selling online at 92 percent, with 68 percent operating brick-and-mortar retail stores. The past five years have seen increases in online sales for 80 percent of retailers, and some of those are pegged at 25 percent increases.
The pre-internet retail distribution network is undergoing a significant reorganization as e-commerce and its younger sibling m-commerce (mobile) are commanding ever greater shares of the pie. The bedrock retail conception of store location itself is breaking down. Shopping is increasingly located in every customer’s pocket, hours of business now 24/7. The retail business depends less and less upon square footage as time goes on.
The translation in square footage almost certainly means two things: first, for some, it will mean smaller physical stores. Retailers will want to pay less for space to avoid supporting the consumer behavior of “showrooming” where the shopper visits the expensively kept, heated, lit and staffed store merely to try out products, then order the product from the lowest-priced online retailer.
The major operations tactic used by retailers to combat showrooming is to have customers order online to then come to the store for pickup. According to Forbes, 7 out of the top ten retailers provide in-store pickup for e-commerce orders. Completing purchases in the store means ending the customer’s impulse to research prices; retailers successful at this get that way by maintaining consistent pricing in e-commerce and mobile channels.
More Logistics Centers, And A Drive To Separate Real Estate Costs
The retail ecosystem, while likely to lose customer-facing square footage in the coming years, still must handle product inventory for fulfillment. This has set the stage for the sharply rising market in third party logistics (3PL) facilities.
The 3PL proposition as a pure real estate deal is not easy to find. Commercial practitioners are often called upon to have logistics experience, because real estate costs are often bundled with logistics agreements in comprehensive service agreements for major clients using 200,000 sq. ft. and higher 3PL facilities.
But while lease negotiations for 3PL providers are often combined or “bundled” with logistics and management agreements, the prevailing retail e-commerce trend is raising demand for service from such facilities. Development of new facilities takes time, but operators and clients don’t want to wait. Operators are looking for ways to unbundle such deals in order to gain the flexibility to service a range of clients under one 3PL roof.
Commercial practitioners working the retail sector would do well to notice that any general decline in customer-facing square footage strongly suggests a matching rise in 3PL demand.
The rise of e-commerce is displacing some traditional retail demand, but it’s also creating new demand on the industrial and warehouse side.
E-commerce has spurred the growth of third party logistics facilities, also known as 3PLs. The facilities handle the order fulfillment behind the explosive growth of US online retail, expected to grow to $279 billion by 2015. These enormous warehouses and shipping centers are drivers of jobs and new construction and enablers of a massive and growing trend.
All that adds up to a big investment opportunity, according to Hamid Moghadam, CEO of industrial REIT Prologis. US warehouse properties figure into his investment trust very heavily, and he stopped by CNBC to discuss the new opportunities in the US industrial property market.