E-commerce has shifted the dynamics of consumer demand and, thus, occupier supply chains, perhaps more than any other force in the last half century. This shift has been a boon to industrial real estate demand as occupiers need more warehouses in more locations to get products to consumers quickly. With the exponential growth of e-commerce, which requires that warehouses stock a larger variety of products and ship directly to consumers based upon dynamic demand, larger facilities continue to be built around the suburbs of major population centers.
Additionally, as consumers increasingly expect that their e-commerce orders are fulfilled and delivered in two days or less, demand for closer “in-town” smaller final-mile fulfillment centers is exploding. It is this segment of the supply chain – getting the order to the end consumer – that overwhelmingly is the most expensive portion of the total transportation costs. Thus, to mitigate the final-mile transportation costs, occupiers find it more effective to locate closer to their consumer base, despite facing higher lease rates.
With nearly 20 million inhabitants sprawled across nearly 35,000 square miles, the Los Angeles Basin markets of Los Angeles County, Orange County and the Inland Empire region of San Bernardino and Riverside Counties (the Basin) presents a unique set of both opportunities and challenges. No market in the country is in higher demand or provides the most opportunity while at the same time has the most inventory constraints in servicing the final-mile than the Los Angeles Basin region.
- Despite its size and diversity, the LA Basin suffers from an acute shortage of warehouses appropriate for final-mile distribution, resulting in extremely low vacancy rates and some of the highest rents in the nation.
- Variables such as population counts; income levels; proximity to major highways; ingress and egress; traffic and crime statistics and labor availability are all part of the analysis when determining the right location for final-mile assets.
- With few vacant land parcels available in Los Angeles County, creative, multi-story warehouses could be the answer for final-mile development in many areas of the basin in the coming years to keep up with occupier demand.
- While it is too early to tell the future of demand for multi-story warehouses, the markets closest to logistics hubs and high population concentrations may see multi-story warehouses in the future including South Bay, Mid-Counties and portions of Central Los Angeles.
- The Inland Empire could lead the way for final-mile distribution in the region. While not as close to the Basin’s core population in a thirty-minute drive time as would be ideal, the Inland Empire can reach the most households in a two-hour drive time and has the land to construct final-mile facilities with the amenities occupiers need.
- We are living in a time of significant supply chain shifts. Retailers, wholesalers, and 3PL firms alike need to move both quickly and carefully to ensure they are well positioned — geographically and functionally — in the dynamic logistics landscape. Those without a coherent, forward-looking strategy may well find themselves marginalized by the emerging supply chain framework.