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E-Commerce Explosion Raises Profile of Distro Centers and Warehouses

The rapid rise of e-commerce is causing companies to rethink their logistics strategies and is sending ripples into the warehouse real estate market.

The latest news finds VF Corp. investing up to $52 million to open a new distribution center in Jonestown, Pennsylvania, in early 2019 and bringing more than 175 new full-time jobs to the area over the next three years.

“As our direct-to-consumer business continues to grow, we see the consumer-focused opportunity to expand our distribution operations so that we can more quickly service our consumers in the Northeastern U.S.,” said Steve Rendle, VF’s chairman, president and chief executive officer. “Jonestown is the ideal place for our new distribution center and warehouse given its skilled workforce and geographic location.”

VF will lease a 500,000-square-foot facility in Jonestown to support the distribution of products for its Vans, The North Face and Timberland brands.

VF’s lease will begin in July. The company expects to begin hiring in mid-2018, with plans to be operational in the new facility by early 2019. The new jobs will include full-time positions in the distribution center and adjacent office location, and will include a variety of roles, including operations, human resources, shipping and logistics, maintenance, safety and clerical.

According to real estate services firm CBRE, land fit for future fulfillment centers for the likes of Amazon and Walmart saw spikes in prices last year. In a trend largely stemming from the growth of e-commerce players across the U.S., some plots of land now cost twice the amount they did a year ago, the group found. This is especially true in major markets, including Atlanta and Houston.

Amazon said Thursday it had reviewed 238 proposals from across the U.S., Canada, and Mexico to host its HQ2, or second company headquarters in North America, and had narrowed it down to 20 metropolitan areas to move to the next phase of the process.

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The company plans to invest over $5 billion and grow this second headquarters to accommodate as many as 50,000 high-paying jobs. In addition to Amazon’s direct hiring and investment, construction and ongoing operation of Amazon HQ2 is expected to create tens of thousands of additional jobs and tens of billions of dollars in additional investment in the surrounding community.

[Read more about e-commerce: DHL Expands Capacity and Logistics to Meet E-Commerce Fulfillment Demands]

In surveying 10 U.S. markets, CBRE found the average price for “large industrial parcels” (50 to 100 acres) now sits at more than $100,000 per acre, up from about $50,000 a year ago, according to a CNBC report.

Industrial land plots of five to 10 acres, which typically house infill distribution centers for completing “last-mile” deliveries, watched their prices soar to more than $250,000 per acre by the end of 2017, up from roughly $200,000 a year ago, according to CBRE. Located in more bustling metropolitan settings, these warehouses must help retailers serve consumers closer to their homes.

The CNBC report said despite an uptick in construction of late, there’s still a long way to go before supply aligns with demand.

“Escalating land prices are a big reason why new supply of U.S. warehouses and distribution centers hasn’t kept pace with strong demand in recent years,” David Egan, the global head of CBRE’s Industrial & Logistics Research division, told CNBC. “This situation won’t go away any time soon because the markets where distribution centers are most in demand — typically near or in densely populated city centers — have scant available land for industrial uses.”

According to CBRE’s annual research, the most active warehouse construction markets today include Southern California’s Inland Empire, northern New Jersey, Chicago and Las Vegas.

Average industrial land prices in the Inland Empire increased 35 percent in 2017, the group found. Prices in northern New Jersey and Las Vegas jumped 17 percent, while prices in Chicago were up about 16 percent.

In a broader context, U.S. industrial real estate development hit an all-time high in 2017, with more than 208 million square feet of construction completed and another 277 million square feet under construction, according to research firm CoStar.

E-commerce sales have increased by 16 percent year-over-year and now account for 9 percent of all U.S. retail sales. E-commerce also accounts for about 12 percent of industrial leasing activity and an additional 22 to 30 percent of indirect leasing through closely tied logistics, distribution and Third Party Logistics, or 3PL, channels.