Light Industrial Properties are in high demand (CBRE Report)

Light industrial properties have seen a recent increase in popularity as a means of work-base and storage, and continue to grow at a stunning rate.

By definition, Los Angeles-based industrial real estate firm CBRE defined warehouses and manufacturing/production units smaller than 120,000 square-feet as fitting the term “light-industrial” property. The majority of average size units at 75,000 square feet are produced from a 300ft by 250ft base with the largest at 400ft by 300ft producing a footprint of only 120,000 square feet.

It seems large, right? But they are still comparatively small compared to some of their much larger corporate cousins and according to CBRE, they are also more in-demand than their counterparts.

How did the Need Arise?

Modern business is focused, essentially, on providing a wide selection of items readily available for dispatch at their mega-unit warehouses. This allows companies to provide customers with a wider variety of choices and fast turnaround of order. This is made possible due to the fact that the item they want is in-stock, sitting on a shelf in a large warehouse.

However, when a company has to manage all of that stock, it can make things a bit more complicated and in turn, slow down the shipping process. When this happens, it negates the entire purpose behind keeping such a large variety of inventory available.

Yes, it is important to stock a wide variety of items to cater to consumer's buying habits, but it should never be done at the expense of delivery speeds.

For example, if you have a customer in Denver, Colorado that is purchasing a product from your warehouse located in Charlotte, North Carolina, it is unlikely that delivery will take place in the next few days. And it certainly is not happening the same day. Which, by the way, is something that Amazon Prime has mastered.

When asked about this situation, Matthew Walaszek, CBRE Associate Director of Industrial & Logistics Research replied: "In this environment of next-day and same-day delivery, retailers and logistics operators were increasingly seen to need proximity to customers producing what has been described as The Last Mile Strategy."

What is the Last Mile Strategy?

Many of these light industrial buildings are infill locations. They form part of a network of satellite locations at which special or expedited items can be stored in smaller, more limited quantities in comparison to the main centralized warehouse.

On this basis, local transport could be arranged to collect and deliver products much quicker. This alone would greatly improve customer retention and create a greater sense of company prestige. Replenishment stock can be dispatched from a larger facility to refill inventory levels. It could even be part of a bulk, multi-drop delivery order, topping up other outreach LIPs where stock has dipped. 

If one local unit does not stock the item, then the next nearest unit that does can supply it from their stock with a slight delay. It is therefore essential that choosing the location and stock for that unit is done with a great deal of care. Taking into account the potential customer base demand whilst economically balancing the overheads for each facility against the benefits to customer service, cost-effectiveness and accumulation of good reputation and prestige. 

How to Select Locations for Light Industrial Properties

The trucking industry is in a phase of digital transformation. Every day, this industry sees more connected devices bringing greater visibility and transparency across the supply chain. This growth allows the enablement of more efficiently chosen and coordinated payloads, as opposed to fuel waste resulting from less "empty miles", lost driver hours, inflated operational costs and unnecessary road congestion.  

In an era of smart-phones, smart cities and smart mobility, the North American trucking industry is itself being funneled toward its own “smart” future-making distribution model. And in the process, light industrial properties are becoming more and more attractive. They are more economical, speedier and efficient and they lend themselves to the steady advancement of business networking and the call for last-mile facility development.

Light-industrial warehouses are viewed as the “true last-touch warehouses” from which merchandise is delivered directly to customers.  

As a result, identification of population clusters in the market for your product is a must along with comparative costs for placing your LIP in that area.

By adding these "local units" to your operation network, this will mean additional overheads from liquid assets in the form of extra shelf stock tying up your overall profitability. Only you can decide if the benefits of more readily available goods across your network outweighs the need to satisfy shareholders, and is influenced greatly by the size of your network operation, capital investment available and desire to expand.

You must consider what size of light industrial properties will be required, which will be governed by local population demand potential, turnover, variety of stock projected at that particular area for ready availability, 

Consideration must be given to the items/materials you will be storing in the unit, eg temperature constraints, moisture/humidity, size/shape, volatility etc. and needs for specific containment within the LIP.

Will the LIP be linked up to, and form a part of an Enterprise Resource Planning Network. Is there sufficient facility available/suitable at choice site for internet data interlink.

A Final Word

The action of expansion into your own particular marketplace offers a wider customer base and higher prospects of increasing sales, but with it comes risks. The use of LIPs offers the prospect of affording maybe four LIP strategic locations covering a much wider area for one mega-warehouse with all of the benefits of availability etc of its eastern partner but likely with a proportionately lower ROI.

To minimize and mitigate some of the risks involved in setting up light industrial properties, you really need to partner with an experienced 3PL. With a dedicated team by your side, guiding you through the process, you stand a better chance of smoothly integrating the new location.

If you want to learn how Redwood Logistics can help you get a light industrial property location up and running, drop us a line today!