Industrial space can support evolving retailer needs

1063
1063
Share this Article
Facebook Twitter LinkedIn Google Pinterest StumbleUpon Email

Ryan Good
Ryan Good
Executive vice president, partner, Etkin Johnson Real Estate Partners, Denver

The retail industry is evolving, and while the growth of e-commerce has not made traditional retail obsolete, as once predicted, it has forced the entire industry to adapt to changing consumer behaviors and meet a new set of expectations.

With almost any product available for online purchase, consumers are less likely to drive to a store, park, walk in, make a selection, stand in line, pay and then drive home, unless there’s a compelling reason. As a result, retailers are introducing new solutions that offer customers both the ease of online shopping as well as memorable in-store experiences that reinforce their brands.

This evolution also means that retailers in Colorado and across the country are thinking differently about their real estate needs. One emerging trend is the growing reliance on the industrial market for manufacturing, storage and distribution solutions as companies employ more e-commerce strategies.

Future demand for industrial space. Regardless of how companies are choosing to adapt to changing consumer demands, the industrial market is starting to play a major support role in the retail revolution and will continue to do so in the coming years.

E-commerce users typically require up to three times more industrial space than a traditional retail supply chain user, according to CBRE’s 2018 U.S. Real Estate Market Outlook. The report goes on to predict that with e-commerce sales forecast to grow by 10 percent annually and to top $500 billion by 2020, demand for high-quality, well-located industrial real estate will remain steady.

Last year alone, the Denver metro area delivered 5.4 million square feet of new industrial space – the highest since 2001 – according to CBRE. Looking at 2018 and beyond, Denver’s strong industrial and logistics market is well positioned to continue providing the type of proximity to consumers and accessibility to major transportation arteries that the retail industry needs.

Deliveries of industrial space in the Denver market, compared with population growth for the area. Courtesy CBRE

How industrial space can be used. Advances in e-commerce have created a new kind of retail experience that allows consumers to get what they want, when they want it. Consider the evolution of Amazon, for example.

In 2005, Amazon introduced Amazon Prime, which offers free two-day shipping on most products. More recently, the company introduced Prime Now, which guarantees free two-hour delivery in select cities, including Denver. This type of on-demand consumerism has created a feeding frenzy and, to keep up with demand, Amazon has constructed dozens of fulfillment centers across the country to store thousands of products that are ready for shipment at a moment’s notice.

Amazon aside, smaller operations also are driving demand for industrial space. As companies continue to grow in Colorado, many are finding success through e-commerce retail strategies that require more space for their operations.

For example, Fenix Outdoor Imports (the parent company behind popular outdoor brands including Fjällräven) nearly doubled the number of its Colorado employees a couple of years ago, necessitating a move into a larger industrial/flex space in the Colorado Technology Center that could accommodate immediate and future growth. The warehouse houses manufacturing, distribution and office functions, as well as a showroom that doubles as a retail staging area.

Similarly, WishGarden Herbs – Colorado’s herbal remedies expert – relocated to the Colorado Technology Center from Boulder in 2014 to expand its manufacturing and distribution operations due to increased consumer demand across the country. This woman-owned, family run company has grown from a small startup to a nationally recognized company by employing both traditional and e-commerce retail strategies.

Other retailers are pioneering solutions that incorporate e-commerce strategies into new concepts that most likely will require more industrial space in the future. For example, the recently introduced 3,000-sf Nordstrom Local keeps limited inventory on site with the opportunity to purchase selections online. With off-site storage nearby, customers can expect same-day delivery of their products to the store or their homes. It is yet to be seen how this type of model will affect the demand for new industrial space, but it is certainly a trend to watch.

As retail continues to evolve in Colorado and throughout the country, companies will continue to figure out new and innovative solutions to meet the changing demands. And while this evolution might take many different forms, it’s becoming increasingly clear that retail will rely heavily on the flexibility and functionality of the industrial market moving forward.

Featured in CREJ’s February issue of Retail Properties Quarterly.

In this article