The growing acceptance of e-commerce among the American consumer has affected many sectors of the U.S. economy - from retail and energy to transportation and commercial real estate, where fulfillment centers are proving to be the linchpin behind its success.
Once you click your mouse to complete your online order on one of the major retail sites, the process begins as the fulfillment center comes to life. These centers have the capability to locate products of any size within them quickly and accurately. Within minutes your product has been identified within the million square foot facility, packaged and loaded onto a carrier for delivery.
The consumer demand for two-day delivery is dictating where these fulfillment centers are built. Fulfillment centers need to have the ability to ship packages north, south, east and west, and into Canada, within a day. This is a very different model than the classic industrial distribution model of yesterday. Gone are the days when large inventories sat in warehouses waiting to be shipped. Today, the consumer is going online to purchase nearly anything they need, from shoes to toiletries and everything in between.
Recently CIT provided financing to Hillwood Investment Properties to develop a 1.2 million-square-foot Class A warehouse/distribution center on 95 acres in York County, Pennsylvania. This facility, Trade Center 83, will have wide column spacing, high ceilings and more than 200 dock doors - all configurations large e-commerce companies demand of new Class A space. To put this in perspective, the average retail store measures about 50,000 square feet, while the average big box store, e.g., Costco or Wal-Mart, is approximately 150,000 square feet.
According to a recent
report by the U.S. Department of Commerce, e-commerce sales in the third quarter of 2014 were $7.8 billion accounting for 6.6% of total retail sales during the quarter and representing a 4% increase over the prior quarter. These figures are likely to grow as e-commerce gains wider acceptance among the American consumer.
As it increases, we can expect the commercial real estate market will continue to react. We also expect to see new construction and retrofitting of existing structures to create additional fulfillment centers around the country as large e-commerce companies seek to meet the demands of the American consumer.
Matt Galligan is President of CIT Real Estate Finance. His group provides stabilized, value-add and construction loans between $20 million and $50 million to highly experienced and well-capitalized developers in the office, retail, industrial and multi-family rental sectors.
Galligan received a bachelor's degree in economics/accounting from the College of the Holy Cross and an MBA in finance from the New York University Graduate School of Business Administration.
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