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Monday, December 7, 2015

E Commerce, Automation & Our Sustained Love Affair With Industrial Real Estate

 by Erik Foster (Chicago)

As the holiday retail season kicks into full gear, we’re seeing technology play an important role in reshaping e-commerce. From robots to sophisticated inventory tracking systems, today’s warehouse and distribution centers are filled with technological advances designed to get the right products at the right time to the consumer. 

As same-day delivery, online order/in-store pick up and other shopping variables take root, technology will continue to play an important role in retailer’s online strategy. There’s an amazing transformation occurring inside the four walls of most newer industrial buildings, but the change is particularly striking in e-commerce buildings.

Consider what Amazon is doing with Kiva robots in its distribution facilities. By using these robots, the online giant is able to improve its operating efficiency by more than six times that of a regular distribution facility. Here they are in action: 

This technology also is being integrated in food services facilities, such as the new Preferred Freezer facility in Washington State that serves the agricultural industry. Rising more than 10 stories tall, the facility is the size of eight football fields. It is fully automated and cost more to build than many office buildings!  It allows Preferred to maximize its real estate footprint on the site and operate its regional distribution hub in the most efficient way possible:

As I discussed at the recent KPMG Global Real Estate Conference in downtown Chicago, industrial assets are multi-purpose, ever evolving and quickly adapting to the use of the latest technology. Business Intelligence estimates that the most prolific business users of technology are the manufacturing, transportation and warehousing sectors, and they will spend an estimated $275B over the next five years growing their businesses. 

Why Industrial is Unique

The other major asset groups (apartments, office and retail) are, by in large, single purpose in nature.  They are there to serve a tenant whose primary reason for occupying that space has not changed much over the years.  Technology and the way we live today are having an impact on those asset classes too.  Yet, the interior of an office building layout and the design of living space within apartments have been fairly static for many years.

Industrial buildings continue to gain momentum as one of, if not the, preferred building types for investors to own.  It will be fascinating to watch the fundamentals of this exciting asset class continue to lead commercial real estate innovation into 2016 and beyond.

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