JLL report focuses on urban infill warehouse and distribution space to fill last-mile gap

Given the constant state of frenetic activity, as it relates to the intersection of e-commerce activity and last-mile logistics, in addition to consumer expectations for same-day delivery, it has led to an increased need for e-commerce distribution operations that are located closer to consumers in populous urban areas.

That serves as the thesis for a recent report issued by Chicago-based commercial real estate firm JLL, entitled “Urban Infill: the route to delivery solutions.”

In the report, JLL explained that among the United States-based markets it broadly defines as optimal urban infill destinations, last-mile availability is 180 basis points below the market, with rental rates having seen steady gains going back to the beginning of 2017.

Closing the “last-mile gap” in a cost-effective and timely way for e-tailers and their delivery partners to be able to meet, in many cases, same-day delivery commitments continues to be a challenge, according to JLL. What’s more, there is no one clear way, approach, practice, or method to augment the current situation either, as different regions and markets deal with different challenges and situations.  

What’s more, JLL observed that even though there remains a high percentage of tenants that still are moving into traditional exurban “greenfield” warehouses, others are establishing fulfillment centers in close proximity to office buildings, shopping centers, and residential areas that are in less functional, but well-located, urban warehouses for the last mile. 

Gillam Campbell, research manager, Industrial for JLL, and a co-author of the report, said that perhaps the biggest takeaway of this report is that urban infill as it relates to last mile is not just in urban corridors, it is throughout all metropolitan areas.

“People who live in the suburbs, for instance, order a lot online, too, and there are also opportunities in outlying areas of metros for urban infill supply and for locations for e-commerce companies to have distribution centers.”

Another key takeaway, according to Leslie Lanne, JLL managing director, is that, given the concept of urban infill is still relatively new, is an indicator of where things truly stand in this cycle.

“A lot of companies are now having to figure out how they penetrate these urban markets,” said Lanne. “It is population-driven and congestion-driven, and when those two trends intersect, it creates a time and efficiency issue in getting to the consumer or a business. A lot of people are now just thinking about how they have to solve that. There is no one solution we have seen that is 100% accurate for that at this point. There is a lot of trial and error to see what works and what does not, and some of that is when you get into these areas where there are a lot of competing [factors], you end up with not a lot of choices for distribution space that our clients are accustomed to that include things like dock doors, parking and all this other stuff that you take for granted when you are not in an urban core.

Lanne likened that to a “chicken and egg” situation in which there are myriad requirements but lack the space required to build, which, in turn, impacts what the requirements will actually look like. This, she said represents, a challenge in executing on the urban logistics concept.

On top of that, JLL pointed to several logistics concerns, when it comes to urban infill development, including things like: congestion negatively impacting delivery timing; higher costs related to the increased volume of e-commerce, like fuel, more drivers, and parking, among others; environmental concerns; warehousing not seen as a priority for urban land, reverse logistics issues, municipal restrictions on logistics operations, and faster delivery times, which add to transportation cost pressures.

These concerns also factor in how there are different concerns in different markets, too, with now being the time to, as Lanne put it, to try and “build the mousetrap within those urban borders” in order to service different population regions.

“No community is the same,” said Greg Matter, JLL managing director. “But the ones we have identified have many of the same congestion and population densities, as well as millennial densities. In San Francisco, for example, the lack of congestion and viable buildable land has been restrictive. In addition to that, communities in the Bay Area that were once traditional distribution-related communities have barriers to entry with code, compliance, and use restrictions. The barriers to enter have never been higher, but that is not stopping institutional investors and logistics operators from pursuing sites that are now record land sites. In San Francisco, we will likely see alternatives from the use of 60-year old buildings, but we likely will see the utilization of covered land for last-mile, and multi-storied distribution centers. None have broken ground but we will likely see those as a direct result of the demand in the Bay Area. The challenges we see there, though, are smaller than we are witnessing [outside the city].”