“Last-mile distribution” is a quite the buzzword in industrial real estate now. Most who use the phrase are trying to couple the excitement around the digital aspects of “just-in-time” deliveries, growth in online shopping, and innovations in door-to-door or even drone deliveries.
By raising the banner of last-mile distribution, some industrial real estate professionals think they can contemporize the way their warehouses are viewed and used, without making substantial changes to the warehouses themselves.
I disagree.
The phrase last-mile distribution refers to the final stage of online purchasing and the travel of goods from a distribution center to the customer or business. There are a limited number of users who will demand industrial facilities for same-day or next-day shipping. Certainly Amazon is a big builder of modern warehouse distribution centers around the country, but most B2C deliveries are still handled by the U.S. Postal Service, UPS, and FedEx, all of which operate their own distribution networks. As a result, I think last-mile distribution is more relevant for B2B than B2C.
From years of working in industrial real estate, specifically in the Dallas-Fort Worth metro area, I have observed that a greater demand for last-mile distribution may be driven by B2B users, which prefer infill locations versus new construction. Common examples include businesses that wholesale to retailers, light assembly and manufacturers, product showrooms, and small third-party logistics firms. These users need to be close to business centers. The infill industrial locations they need not only reduce transportation overhead, but also provide greater access to labor.
The North Texas market is ideal for last-mile distribution for B2B users. The DFW area is consistently ranked as one of the fastest growing metro areas each year due to its affordability, location, and strong labor force. According to the Economic Development Profile of 2016 from the City of Dallas, North Texas has a notably higher concentration than the nation of manufacturing and logistics occupations.
Of course, the challenge for most last-mile distribution users is that the typical inventory of infill properties are older with functionally obsolete features, including lower ceilings/clear heights, limited truck loading docks and truck courts, antiquated fire suppression systems, and strained car parking options. There are few examples of modern industrial buildings for last-mile distribution, as land costs have become exorbitant for new construction and local municipality boards prefer other real estate uses (that result in fewer trucks on the road).
The good news is that many B2B users routinely overlook the functional challenges seen in older infill buildings if they can ensure the right location and not situate 60 miles from their customer and peer networks.
We have been identifying and acquiring high-potential infill properties in North Texas for more than 25 years. Our strategy includes making capital improvements as soon as acquisitions are closed. This typically involves roof replacements, upgraded truck loading docks and truck courts, modern fire suppression systems, better car parking options, and LED lighting in warehouses. To create external signals that projects have been revived, we look for opportunities for signage improvements, as well as exterior and interior painting and lighting upgrades.
As a result of our alternative approach, I believe Westmount’s current and future industrial investments are uniquely poised to benefit from last-mile distribution as we interpret it.
Cliff Booth is CEO of Westmount Realty Capital LLC. Contact him at [email protected].
