E-commerce is turning industrial sector into hot commercial real estate asset class in L.A.

September 6th, 2018

By Marcus DiNitto – Contributing Writer
Sep 1, 2018


As consumers increasingly shop online, retailers are changing how they interact with their customers. Customers are expecting the option of picking up their purchases or having them delivered with expediency and convenience, similar to how they were able to buy the product with just a few clicks.

Retailers recognize they need to feel as if they’re physically close to their customers, according to Los Angeles commercial real estate executives.

“For many years, it was about being close to the port or being close to employment base, but now there is this tremendous amount of drive for speed of delivery,” says Frank Schulz, SIOR, managing principal for The Klabin Company.

Access to the customer was the major factor in Amazon’s decision to acquire Whole Foods. “About 80 percent of Walmart’s real estate is within 15 minutes of 90 percent of the U.S. population,” says Jon Reno, SIOR, senior vice president and managing partner, Kidder Matthews. “Amazon doesn’t have that, and they know that. They’re trying to get there, but that’s where Walmart has its competitive advantage.”

Amazon gained physical locations with the Whole Foods purchase and has installed lockers in stores so customers pick up their online orders, sometimes in a matter of just a few hours. “Amazon didn’t buy Whole Foods for access to the grocery market, says Schulz. “They bought Whole Foods because it was a real estate transaction. They wanted to be able to control real estate in high-value areas. The value is that they (now) have access to people. They’re using Whole Foods as the last mile, the golden mile, to the consumers.”

As the trend relates specifically to the L.A. commercial real estate market, industrial properties – long being snapped up by developers for housing, office or creative uses – are catching the eyes of e-commerce companies. That is driving up prices of industrial real estate.

E-commerce companies are paying competing prices for what used to be less than desirable spaces. “The new hot asset class is anything that relates to e-commerce or logistics and is as close as possible to the population centers,” Schulz says. “Previously, they may have been inferior locations due to just their physical characteristics. That no longer matters.”

In fact, industrial real estate prices are starting to rival those of residential and retail. Schulz continues, “The prices will continue to rise and their prices will not track traditional industrial pricing. They’re going to track what a residential property is worth or what a retail space is worth.”

More promising to the industrial commercial real estate sector, e-commerce is in its infancy. According to the U.S. Commerce Department, about 9 percent of retail purchase were made online in 2017, a 16 percent increase from 2016. This year, e-commerce is expected to account for 10 percent of sales.

“From a material goods handling movement standpoint, from the big distribution centers down to the brick and mortar where these products are dropped off before they get to your home, the whole model is continually shifting because of e-commerce,” Reno says.

“There’s a huge cultural shift taking place. People are moving much faster, purchasing things on their phones,” says Schulz. “That’s just going to increase, and those industrial facilities where these companies park and process these products are going to keep increasing in value. It’s just going to continue to grow”.


Learn more about the SIOR Greater Los Angeles Chapter.

The Society of Industrial and Office Realtors® represents the world’s elite in industrial and office brokerage. For more than 75 years, the SIOR designation has signified the highest standard among industrial and office professionals. Established in 1941, SIOR now extends to 48 chapters worldwide, consisting of nearly 3,200 members in more than 685 cities in 36 countries.

Marcus DiNitto is a contributor to The Business Journals. He is a Charlotte-based freelance writer and editor, specializing in content marketing and sports. He earned an MBA from the University of North Carolina-Charlotte. Connect with him on LinkedIn and Twitter.


You can read the original article here: https://www.bizjournals.com/losangeles/news/2018/09/01/e-commerce-is-turning-industrial-sector-into-hot.html