The industrial real estate market in Southern California is a glimpse into the future, and businesses should take note of its message to understand what’s in store. In particular, the types of properties most in demand are those designed for distribution-type use, with higher ceilings, space for trucks to maneuver and load, and sufficient loading docks, because distribution companies have been driving the market and will continue doing so. This reflects both the economic realities that are changing the way all kinds of companies are doing business and the particular features of the area.
The Rise of E-Commerce
Even before the pandemic, online ordering was changing the way people shopped. With Amazon setting consumer expectations for fast time delivery times for internet orders, traditional big-box retailers were scrambling to retain customers by ramping up their own online capabilities and adding fulfillment space to make it happen.
Then the pandemic hit, accelerating the shift to online ordering for all kinds of companies. People who wanted to avoid visiting stores in person expanded their online shopping habits to areas of commerce not traditionally associated with delivery, such as grocery shopping. The demand has services like Instacart planning their own fulfillment centers. However, it’s worth noting that in the first quarter of 2021, e-commerce sales only made up 13.6% of retail sales—meaning that there is a lot of room for continued growth. As that percentage grows, the demand for industrial space and the shipping services to support it will grow as well.
The Unique Features of Southern California
In the past few years, nearly 20 million square feet of industrial space has been built in the Inland Empire each year, and demand for more isn’t going away. Why here? One of the primary reasons is the area’s proximity to the Ports of Los Angeles and Long Beach. The area is a huge channel of distribution to the rest of the country, and with shipping volumes rebounding from the pandemic, it’s more important than ever that the region have the capacity to store and ship the goods arriving from overseas. June 2021 was the busiest June in the port of Los Angeles’ history, and so many container ships are continuing to arrive that a growing number are having to wait for berth space to unload.
The area is also home to a huge population—nearly 14 million people just in Los Angeles and Orange Counties. That represents a large consumer base in a relatively small geographic area. It’s critical for retailers wanting to maintain fast shipping times to their customer base to have appropriate facilities in the area.
Rethinking the Supply Chain
The final factor driving increased demand for industrial space is a reevaluation of how companies maintain their inventory. Businesses that relied on just-in-time inventory management learned exactly how fragile the global supply chain could be when overseas production shut down or shipping was delayed. Retailers are trying to avoid having bare shelves in the future by securing more storage space, bracing against the possibility of future supply shortages or shipping delays. Manufacturers are also making moves to onshore some production; while it’s unlikely that high-volume manufacturing will return to Southern California, specialty manufacturing of high-value items may also increase demand for industrial properties.
Impacting Your Business
The increased demand—and cost—for industrial space is likely to increase the cost to store and ship goods for companies without established resources. Having an experienced partner to handle drayage, 3PL, and distribution services can make a critical difference for growing online businesses in keeping costs down and providing superior service. Westset Logistics has the technology and expertise to get your goods where they need to be when they need to be there, allowing you to focus on running your business. We work with each of our clients to deliver a customized solution that meets your strategic needs. To find out how we can help you stay competitive and reliable in a changing market, contact us here.