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The New Economy Runs on Urban Logistics Centers

The future is urban. So-called urbanization, or the increase in the proportion of people living in cities compared to suburban and rural areas is a growing trend fueled by more infrastructure and amenities being built around dense populations. By 2050, it is expected that more than two-thirds of the world’s population will live in cities. For the first time in recent history, populations are higher in cities than in rural areas, and this is only expected to grow. There is no ignoring the impacts of urbanization, not only in the United States but across the globe commands change, and industries must adapt now in order to be sustainable in the future. Business-to-consumer companies especially must future-proof themselves and prepare for this economic shift with the interest of staying in business. Cities provide businesses prompt access to heavily-populated, and often higher-income customers, and with the demand anticipated to keep growing, the need for access to these customers is pivotal for business owners. In 2018, e-commerce sales represented more than half of all retail growth, and the number of online sales has increased year after year. To serve the increase in online orders, new and modern urban logistics facilities will need to raise up.

Urban markets have always been premier in the retail industry, thanks to the high foot traffic that city locations draw in. However, with the rise of e-commerce over the last two decades, the approach to retail is adapting. Since the first e-commerce transaction occurred in 1994, the way consumers shop has changed. Online shoppers today are accustomed to two days or less for delivery, and brick-and-mortar buyers expect to be wowed when walking through the door. Instead of traditional methods, retailers are focusing on their urban locations differently, opting for experiential showroom-like concepts to draw customers in, knowing that they have the option to shop online from anywhere, at any time. Nationwide, adapting to these challenges has led to an “increase in store closures and questions about the future of the brick-and-mortar retail business,” according to CBRE; however, high-quality, and high-income stores are remaining open. Retailers have to adapt to service these pertinent urban customers and their needs, which are ever-changing in today’s world.

Having an urban logistics facility also allows for almost immediate access to high-income earners, and tech-savvy millennials who are ruling the workforce in cities, in comparison to their rural and suburban counterparts. For example, with companies like Google, Facebook and Apple expanding their footprints in New York, the city has become a bolstering tech hub, straying from the typical financial institutions the city has housed for decades. The rise in tech in New York City brings a greater need to satisfy these markets and match what they’re looking for: what they want, when they want it, and fast.

E-commerce is the retail of the future, with plenty of room to grow. Although online sales represent only 10% of total retail spend today, year-after-year it continues to see double-digit growth. To better serve their customers, companies first need to analyze their logistics strategy. Consumers today expect what they need to be available online, and they expect it quickly. This means, being able to compete with the two-day, next-day or even same-day shipping offerings of competitors. According to SaleCycle, the average online cart abandonment rate is 75.6%, with 55% saying add-on costs (including shipping), are too high. Not being able to quickly, and cost-effectively ship at an expedited speed is the downfall for many retailers. Having access to a centrally-located urban logistics facility provides the opportunity to better serve these customers at accelerated speeds. When it comes to logistics strategies, companies that are getting by using the same old methods will fall behind.  

The top retailers today already recognize the benefits of urban logistics centers, which include closer proximity to dense, well-to-do customers, both from a direct-to-consumer and store replenishment perspective, but they can also reduce supply chain costs when utilized correctly. New, modern logistics facilities offer high-tech features that older properties do not have, such as sufficient power, electrical vehicle hookups, higher ceilings, and more loading docks that are essential for future-proofing your business. CBRE reports that only 4% of today’s available logistics and warehouse inventory was built after 2008, indicating that the majority of space being used today was built prior to the e-commerce boom, and is not equipped for the needs of today.

New, modern facilities not only offer more environmentally-sustainable features for the future, they can increase services and decrease costs. Although rents tend to be higher in urban markets for warehouse spaces, logistics facilities still only represent less than 5% of total supply chain costs when factoring in other expenses, including pricey shipping fares from less-convenient locations, labor and transportation. The closer the logistics facility is to more bridges, tunnels, and thruways, the greater access there is to more customers at a faster speed and can increase product turnaround. The savings benefits of an urban logistics facility with updated features and easier access to the most valuable customers far outweighs the difference in suburban and rural warehouse rents.

Today, we are in a place where most companies have identified what the logistics needs of the future look like, yet few have taken the leap into making these steps a reality. There is little urban warehouse inventory available to begin with, and the fight for space has already begun. Soon, as more companies start to realize that the solution to efficiently service to these urban locations lies with the urban location itself – not from an antiquated, suburban logistics center –  much of the space will already be in use. For example, in New York City, the country’s densest urban market, inventory has already zeroed out, leaving developers with the only option of building up and creating multi-level warehouses. Considering these factors, as customers are adapting to faster shipping rates, logistics facilities outside the urban core will not be able to compete. Newer, more modern facilities that are built to meet the demands of today, will withstand the changes of tomorrow.

Propmodo is a global multimedia effort to explore how emerging technologies affect our built environment.

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