As more online consumers choose same-day and next-day delivery, e-commerce retailers are racing to expand their operations in Southern California.
Online retailers are growing beyond the traditional fulfillment warehouses in San Bernardino and Riverside counties, adding many smaller (200,000 square feet or less) industrial spaces in urban and suburban areas, according to a new report from the real estate giant CBRE.
These spaces are sometimes referred to as "last mile facilities," although they're typically located 5-10 miles from customers' homes. E-retailers store their most popular products in these facilities – namely the items that online customers typically select for quick delivery. That way, when an order comes in, the retailer can box it up quickly and get it to a customer's doorstep within hours.
"Typically these companies know pretty much exactly where they want to be, because they know who their customers are and what products they are buying," said Kurt Strasmann, who directs CBRE's Southern California Functional Industrial & Logistics Market.
"They want to get into that location because they are trying to expand their businesses as well as take business away from their competitors, so they are using the location as a competitive advantage," he said.
But there are simply not enough of these smaller industrial spaces in Southern California to meet demand, said Strasmann.
"The bottom line is, it's very slim pickings," he said. "It is difficult to find quality space."
E-retailers often have to settle for spaces that are smaller than they desire. Rents in this category have also risen by an average of 8 percent each year since 2013, which CBRE attributes to the strong demand for "last mile" facilities.
Over the years, developers have built more of this type of smaller warehouse space closer to large cities. According to the report, in 2012 there were less than 2 million square feet of "light industrial activity" in the L.A., Orange County and Inland Empire areas. In 2016, light industrial activity had grown to nearly 9 million square feet, and it is on track to surpass that amount in 2017.
CBRE forecasts that e-retailers will also get creative and move beyond industrial space, storing some of their products in brick-and-mortar shops and mobile mini-warehouses, where customers and couriers could pick up orders.
E-commerce's best customers, the report found, are people who live in densely populated areas, between the ages of 20-45, with incomes of more than $50,000. There are an estimated 3.5 million households in the Los Angeles, Orange County and Inland Empire areas that fall into those categories, the report said.