Why E-Commerce Will Drive Growth of Indianapolis Industrial Market

The greater Indianapolis industrial market has experienced incredible growth over the past three years, and it continues to be one of the most sought-after industrial markets in the country.

Supply and demand is the big story in early 2016. Because shovel-ready land is difficult to find, demand for land alternatives is pushing development further and further away from the beltway while simultaneously causing land prices to escalate. Local communities that figure out how to competitively bring shovel-ready land to the market will reap great rewards.

There is strong demand for space across the industrial sector, with second-generation and medium-size distribution space outpacing the other industrial product types. Those seeking smaller, single-tenant buildings under 50,000 square feet are realizing how difficult they are to find.

Additionally, the supply of available speculative space in the greater Indianapolis market has been on everyone’s radar for the past two years. Demand for spec space is catching up to the supply as evidenced by several new leases signed since the end of 2015.

Currently, there is approximately 2.2 million square feet of industrial product under construction, including 1.4 million square feet of speculative development and 800,000 square feet of build-to-suit construction.

Game changer

Bryan Poynter SIOR, CCIM, Senior Vice President, Cushman & Wakefield

Bryan Poynter
Cushman & Wakefield

The e-commerce landscape is changing much more dramatically and faster than ever before. E-commerce retailers have had trouble keeping up with demand around the country, which is driving the industrial world to change.

With consumers’ increasing demands for rapid delivery of their online purchases and the myriad of delivery options available to consumers, the cell phone is literally changing the demand for 1 million-square-foot warehouses.

The impact of e-commerce is widespread. Developers and investors are recognizing that e-commerce is the leading driver of new development. Contractors are learning that
e-commerce construction is amazingly specialized and that the technology and robotics are stunning.

Elected officials and those involved in economic development already know that e-commerce creates labor and infrastructure issues due to the unusually large number of employees working in these facilities and the subsequent stress on traffic and access to public transportation for employees.

And service providers such as commercial real estate brokers must understand how e-commerce works and what their clients are demanding.

Brokers need to understand the unique e-commerce requirements for excessive parking, taller clear heights, complex mezzanine and automation systems. They also need to be aware that their clients covet locations near the urban core.

According to Ben Conwell of Cushman & Wakefield’s e-commerce and electronic fulfillment specialty practice group, “The death of physical, traditional retail has been greatly exaggerated. However, the online effects can scarcely be overexaggerated. The days of the 1 million-square-foot fulfillment centers are far from over.”

Retail demand and the speed with which consumers expect deliveries have far exceeded the ability of retailers and logistics providers to keep up. Global e-commerce totaled $800 billion last year, up from $175 billion in 2005. Amazon has more than 100 facilities in over 65 million square feet across the country, with plans for dozens more facilities to come.

And while there is already a Walmart store within five miles of 70 percent of the U.S. population, the giant retailer wants to increase its reach to 90 percent with next-day delivery from dedicated e-commerce fulfillment centers.

It’s estimated that 30 to 40 percent of new industrial development in the United States is tied to retail distribution, and 15 percent of new industrial leasing nationally is tied to
e-commerce growth. These figures have tripled from four years ago.

‘Last mile’ delivery is key

Clear heights — the minimum height of usable space within a structure — are expected to increase. In fact, 40-foot clear heights are just around the corner. In Louisville, for example, the first speculative building with a 40-foot clear height will be delivered in the fourth quarter of this year.

Granted, the availability of cheap land blurs the lines of when it makes sense to construct a building with a 40-foot clear height, but the expensive infill locations closer to urban centers are critical to e-commerce and will drive clear heights up to take advantage of cubic capacity. Technology and automated robotics are developing at light speed. Technology is changing it all.

The third-party logistics industry will explode in the next five years — more so than in the past 10 combined. Thousands of retailers and
e-commerce shipping specialists are needed to execute the fulfillment of the “last mile,” or how your order gets from the warehouse to you.

The last-mile delivery is gaining traction in the retail industry, and the innovation investment around it is white hot. It is way too expensive for retailers to have their own last-mile services, so they will have to hire that out. Massive consolidation is inevitable.

Rapid market changes likely

Despite challenges such as the supply of large speculative modern bulk buildings outpacing demand, the greater Indianapolis industrial market will likely change this year. Expect to see a continuation of build-to-suit activity in the region as well as an increase in speculative development of medium-sized bulk buildings.

Competitively priced, fully developed land is needed to meet ever-increasing demand. The evolution in technology and robotics, along with explosive growth in the third-party logistics industry, will continue to significantly impact this sector going forward.

— By Bryan Poynter SIOR, CCIM, Senior Vice President, Cushman & Wakefield. This article originally appeared in the March 2016 issue of Heartland Real Estate Business.


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