Michael Weishaar,
Cushman & Wakefield
Consumers’ desire for shopping convenience and lower prices is driving online retail sales up, accounting for 7.2 percent of total U.S. retail sales so far in 2015, according to the U.S. Census Bureau. And that percentage is expected to double by 2020.
It’s no wonder that the popularity of online shopping also is spurring growth in the industrial segment of commercial real estate, particularly in central Indiana.
Over the past three years, the growth of e-commerce has accounted for 55 percent of total industrial net absorption in the United States. In 2015 alone, e-commerce has been responsible for 31 percent of industrial net absorption year to date.
During the current expansion, the Indianapolis industrial market ranks eighth among all U.S. industrial markets in terms of total net absorption, according to Cushman & Wakefield.
In the second quarter of this year, net absorption for modern bulk space totaled 1.6 million square feet, more than any other industrial segment in the market. Since 2013, nearly 15 percent of industrial square footage leased in metro Indianapolis has been related to e-commerce.
The FedEx Factor
With a compound annual growth rate of 14 percent since 2008, e-commerce has driven retailers to establish dedicated dot-com fulfillment centers further inland in order to satisfy customer expectations of same-day or next-day delivery.
Although the central location of Indianapolis is appealing to companies, developers and investors alike, even more beneficial is that the city is a major FedEx hub. The shipping company serves a vital purpose in delivering goods quickly and on time, as retailers are seeing more demand for these shipping conveniences.
With four distribution centers totaling nearly 4 million square feet in central Indiana, Amazon.com is a leader in same-day delivery, taking advantage of greater Indianapolis’ central location and proximity to the FedEx hub. The online retail titan now offers same-day delivery service to the Indianapolis area.
The impact of e-commerce on central Indiana’s industrial segment is impressive. In the last two years, there have been four significant e-commerce developments in the industrial market. The largest of these was Walmart.com’s move into a 1.15 million-square-foot building in the suburb of Plainfield.
Two new e-commerce facilities in the city of Indianapolis include Newegg’s 412,000-square-foot fulfillment center at 6161 S. Decatur Blvd., and Solutions 2 GO’s 191,000-square-foot building at 7900 Rockville Road.
Earlier this year, Ozburn-Hessey Logistics occupied a 450,000-square-foot newly constructed facility in Plainfield for e-commerce-related fulfillment.
Fulfillment Center Trends
The growth of e-commerce has effectively forced developers to rethink their warehouse design. The dynamic of increasing sales online spurs the need for more warehouse space to stock, sort and pack shipments to send to shoppers.
Large e-commerce users can store as many as 1 million distinct items for fulfillment and delivery, and the e-fulfillment process of stocking, sorting and packing is much different than the traditional warehousing process of palletizing and shipping.
E-fulfillment requires workers to pick out and pack each product by hand, which in turn has led to building multiple mezzanine levels and “pick module” racking systems that are typically nine feet high.
Ceiling heights of 40 feet, rather than the industry-standard 32 feet, allow a distributor to construct three levels above the ground floor instead of two and still allow room for lighting and fans.
Additionally, heavy power is necessary to run sophisticated logistics machinery and conveyor systems. These fulfillment centers rely upon high-tech mechanics to electronically guide products through facilities at lightning speed and maximum accuracy.
Parking also is key to large fulfillment centers due to the high number of employees working at these types of facilities. Although many buildings feature cross-dock configurations, some companies are using one side for parking and the other side for loading.
As companies such as Amazon.com continue to grow, they are shifting from using vast amounts of temporary workers for seasonal increases to employing full-time workers.
In greater Indianapolis, access to qualified labor is an emerging topic of conversation, and ideas are being formulated to further develop the pipeline of workers.
More Growth on Horizon
Economists are bullish on the metro Indianapolis industrial market. We closed last year with 9 million square feet of modern bulk space under construction, 4 million of which was true build-to-suit and fully absorbed. The remaining 5 million square feet of speculative space was only partially absorbed.
Therefore, solid options exist in the greater Indianapolis marketplace to immediately accommodate new e-commerce requirements.
Despite an aggressive development pace, prices and rents are still pushing upward. The latest trends suggest that pattern will continue in the latter half of this year.
It’s a healthy sign that new e-commerce transactions are continuing to take place, and some new names will appear in the metro Indianapolis market in the near future.
— By Michael Weishaar, SIOR, Senior Managing Director, Cushman & Wakefield. This article originally appeared in the October 2015 issue of Heartland Real Estate Business.