Logistics real estate: What is it and what are its different types

In today’s interconnected and constantly changing global economy, supply chains are the foundation of commerce. The often neglected but crucial element at the center of this intricate network is logistics real estate. By understanding the complexities of logistics real estate, we gain insights into the factors driving industries forward and their vital role in ensuring the seamless delivery of products to our doorstep.

Logistics real estate and its importance in supply chain management

Logistics real estate refers to commercial buildings designed for storing, handling, and distributing goods. This category includes warehouses, distribution centers, and fulfillment centers. Businesses of all sizes, from small retailers to large manufacturers, rely on logistics real estate for efficient operations.

Different types of logistics real estate

There are many different types of logistics real estate, each having its own unique characteristics and purpose. Some of the most common types of logistics real estate include:

Warehouses

Warehouses are typically large buildings used for storing goods. They are generally located near major transportation hubs, such as airports, seaports, and highways. Warehouse space can be used for various purposes, including storing finished goods, raw materials, and inventory.

Distribution centers

Distribution centers are large warehouses used for sorting, packaging, and shipping goods and are equipped with loading docks, conveyor belts, and other materials handling equipment. Distribution centers are used by businesses to distribute goods to retailers and consumers.

Fulfillment centers

Fulfillment centers are smaller warehouses used for picking, packing, and shipping goods to consumers. They are typically located near major metropolitan areas and are equipped with the latest technology, such as robots and conveyor belts. E-commerce retailers use fulfillment centers to fulfill orders to customers quickly and efficiently.

Cross-docking facilities

Cross-docking facilities are warehouses designed for the rapid transfer of goods from one truck to another and are used by businesses to move goods quickly from one part of the country to another.

Cold storage facilities

Cold storage facilities are warehouses used for the storage of goods that require refrigeration. They are typically located near major population centers and are used by businesses to store food, pharmaceuticals, and other temperature-sensitive products.

Micro-fulfillment centers

Micro-fulfillment centers are compact and strategically placed warehouses in urban areas, situated near large populations. These facilities are optimized to provide fast and efficient delivery of goods, with delivery often taking place within 24 hours. This trend is being driven by the growth of e-commerce and the growing demand for same-day delivery.

The type of logistics property suitable for a particular business depends on its specific needs. With businesses adopting new technologies and modifying their operating models, the demand for diverse kinds of logistics real estate will continue to change.

Emerging trends in logistics real estate

The logistics real estate sector is constantly changing, influenced by advancements in technology, shifts in consumer preferences, and global economic conditions. Below are some of the latest trends in logistics real estate:

• The adoption of automation: Automation is becoming more prevalent in the logistics real estate industry. Robots and other automated systems are utilized to complete tasks like selecting, packaging, and delivering goods.
• The growing importance of sustainability: Logistics properties are increasingly affected by sustainability concerns. As companies strive to minimize their environmental footprint, there is a growing need for more eco-friendly logistics facilities. Some sought-after features include solar panels, energy-efficient lighting, and rainwater collection systems.
• The importance of location: When it comes to logistics real estate, location remains a crucial factor. Companies must position their logistics properties close to key transportation hubs like airports, seaports, and highways. Additionally, they should take into account the distance to their intended customers.

Staying up-to-date with the latest trends in logistics real estate is crucial as the market is constantly changing. It’s important to take note of these emerging trends to make informed investment decisions.

Location and site selection factors

When choosing a logistics real estate site, location is a critical factor to consider. There are various key location and site selection factors to bear in mind, including:

Factor	Description
Proximity to major transportation hubs	Logistics facilities need to be located near major transportation hubs, such as airports, seaports, and highways. This ensures that goods can be transported quickly and efficiently to their destination.
Proximity to the target market	The location of the logistics facility should also be considered in relation to the target market. For example, a facility located near a major population center will be better suited for businesses targeting consumers.
Availability of labor	The availability of labor is another critical factor to consider. Logistics facilities require a large workforce, so choosing a location with a strong labor pool is very important.
Zoning and permitting requirements	When selecting a logistics real estate site, it is crucial to ensure that the proposed location is zoned for commercial use and that all the required permits have been acquired.
Tax incentives	Some states and municipalities offer tax incentives for businesses that locate logistics facilities in their area. These incentives can help offset the site’s cost and make it more affordable.

In addition to these factors, it’s also important to consider the business’s specific needs when choosing a logistics real estate site. For example, a company that needs to store large quantities of goods will need a site with adequate space. A business that needs to ship goods quickly will need a site near major transportation hubs.

Challenges in logistics real estate

The logistics real estate market continues to evolve, which naturally means there will be challenges that businesses must overcome. Knowing where these potential landmines are located increases the odds of success for companies and investors. Three of the major challenges the logistics real estate market is facing include:

1. High demand and limited supply: The demand for logistics real estate is outpacing the supply, driving prices higher. This is being driven by the growth of e-commerce and the need for businesses to store and ship goods more efficiently.
2. Rising construction costs: The cost of construction is rising, which is making it more expensive to build new logistics properties. The rising cost of materials and labor are contributing factors.

1. Labor shortages: Staffing logistics facilities due to a shortage of skilled labor is a significant challenge for businesses expanding their operations or opening new facilities.

Like all markets, the logistics real estate market faces challenges. Businesses planning to invest in this market must be mindful of these when planning and making investment decisions.

Future outlook and opportunities

The future of logistics real estate looks promising as the demand for it is expected to increase in the coming years, which can be attributed to the growth of e-commerce and the surge in global trade. As a result, more opportunities are emerging for businesses engaged in logistics real estate.

Here are three of the opportunities in logistics real estate:

Automated logistics facilities

Automation is becoming increasingly common in logistics real estate. Robots and other automated systems are being used to perform tasks such as picking, packing, and shipping goods. This can help improve efficiency and reduce costs.

Sustainable logistics properties

Businesses are looking for ways to reduce their environmental impact, leading to a demand for more sustainable logistics facilities. This includes features such as solar panels, energy-efficient lighting, and rainwater harvesting.

Logistics facilities in emerging markets

The growth of e-commerce and global trade is creating new opportunities for logistics facilities in emerging markets. These markets offer lower costs and a growing workforce, making them attractive for businesses looking to expand their logistics operations.

These are just some of the opportunities in logistics real estate. The market is constantly changing, so staying up-to-date on the latest trends is important to make informed decisions about your investments.

Conclusion

As supply chains evolve, logistics real estate stands as a cornerstone, leading the flow of goods in our modern world. Its warehouses, hubs, and centers create a swift and efficient distribution network, sustaining the global economy’s vitality and the seamless delivery of products we rely upon.

Author

Jamie Stadtmauer

Jamie Stadtmauer is the Vice President of Business Development at Agora and has over 20 years of experience in commercial real estate investing.

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