Online consumer demands are changing, and the need for warehouse space is changing with them. 

At the start of the e-commerce boom, major online retailers were focused on building mega warehouses of 500K SF or more at the edges of large population centers. These warehouses have typically been constructed where land is cheap and plentiful, but close enough to major cities to provide overnight or even same-day delivery to locals.

Now, online shoppers are expecting their purchases to be delivered within hours, and e-commerce companies are shifting their focus to finding smaller last-mile distribution spaces in the middle of population centers, as opposed to on the outskirts.

The need for these warehouses has created a unique opportunity for landlords. 

“The need for last-mile space has given new life to second-generation, obsolete buildings that landlords have been struggling to rent out,” The Andover Co./CORFAC International, Seattle, Managing Principal Jeff Crane said. “By making some adjustments, landlords can put these buildings in a great position to be a part of this hot market.” 

To make buildings more attractive to e-commerce companies, landlords can increase their assets’ power capabilities, add truck docks, and build covered storage and staging areas that can accommodate a high-volume of car-based deliveries from companies like Lyft and Uber, Crane said. They can also add parking infrastructure if they lack it, since these centers often require more workers than traditional industrial buildings.

Crane added that even with these upgrades, there are still drawbacks to second-generation buildings for some last-mile users. 

“Building ceiling heights used to top out at 18 to 24 feet, depending on when they were built, but innovations in picking systems and sprinklers now can require clearance of 40 feet or more,” Crane said. “Not all users take full advantage of all that vertical storage, but for those that do, the lower ceiling height limits the efficiency of the space.”

While building a new last-mile warehouse can solve some of these challenges, Crane said ground-up development also has downsides. In addition to cost and speed-to-market considerations, new development is less sustainable than renovation, and area residents may also resist higher ceiling heights. 

“Except for build-to-suit deals and properties requiring environmental remediation, developers generally see more opportunity in rehabs than new construction,” Crane said.

Crane said this means that for now, second-generation buildings often remain the best option for online distributors looking to meet same-day delivery requests. 

“Eventually, the supply of modern distribution space in cities will catch up with demand,” Crane said. “In the meantime, e-commerce companies are making do with functional space that allows them to meet their last-mile delivery needs, and landlords of second-generation buildings should take notice.” 

This feature was produced by Bisnow Branded Content in collaboration with CORFAC International. Bisnow news staff was not involved in the production of this content.