Consumers have fully embraced the reality that just about everything their hearts desire is only a click away, so it’s no surprise that real estate deals for e-commerce fulfillment centers are surging. And so is demand for labor to keep them running.
Over the last two years, e-commerce logistics real estate was the most active industrial sector in the United States. In fact, it represented 22.5 percent of all big-box leases of 500,000 square feet or more. That’s up from 16.1 percent of all big-box transactions from 2010 to 2014, when e-commerce was the third most-active industrial sector.
Those big warehouses don’t stock themselves. Even with warehouse automation, e-commerce fulfillment and distribution centers create high demand for human workers to fill the square footage and keep operations running smoothly.
For various reasons, e-commerce fulfillment operations require two- to three-times more labor than nonfulfillment-driven operations. A traditional warehouse typically handles simple bulk shipments of wholesale products for retail stores. In contrast, an e-commerce fulfillment center involves picking, packing and shipping diverse products in unique combinations to individual consumers or pick-up centers. No wonder a traditional warehouse employs one worker per 1,500 to 3,000 square feet of warehouse space, on average, while a large-scale e-fulfillment operation requires one employee per 700 to 1,000 square feet of space.
Dwindling Labor Supply Pushes Up Wages
The U.S. economic cycle is at the tail end of the Federal Reserve’s aggressive post-recession low-interest rate policy that helped lower the unemployment rate to its current level. As the economy reaches full employment, wages are expected to increase as employers compete for qualified labor.
Wage growth is already underway in the warehouse and distribution sector. In fact, wages for warehouse labor are rising faster than for any other occupation. The rise of e-commerce and the need for large-scale distribution facilities have exacerbated labor demand in many major industrial markets. A dwindling supply of labor has forced traditional warehouse and distribution employers to compete with large e-fulfillment operations, which often offer well-above-average hourly wage rates.
The industrial markets with the highest levels of e-commerce leasing activity have seen median wage rates for laborers and freight stock employees increase by an average of 5.8 percent from 2013 to 2015, more than twice the 2.7 percent average increase in wages across all occupations.
The continued demand for constrained labor won’t ease in the near future. The rise of e-commerce and the complexities from heightened consumer delivery demands will continue to put pressure on demand for industrial facilities with atypically high employee counts.
With big-box leasing flourishing and unemployment rates reaching new lows, continued wage growth for warehouse associates is expected to outpace many other employment sectors, putting upward pressure on overall total costs for delivered goods.
E-commerce and traditional logistics operators are taking steps to succeed in these market conditions. Site selection and location intelligence have become critical components to master the real estate-labor equation. We can also expect to see additional warehouse automation to improve productivity, along with labor management systems. Landlords will need to anticipate how the adoption of new warehouse technologies and distribution strategies will shape the location and design of warehouse and distribution centers.
Most importantly, big-box landlords and tenants alike must prepare for change today. The rise of e-commerce seemed to happen in the blink of an eye, and the next industry game changer is no doubt right around the corner.
Article by Kris Bjorson and Matt Powers, JLL. Kris Bjorson, International Director, develops and manages the Retail Distribution Services business for JLL. Matt Powers, Executive Vice President, leads and grows JLL’s emerging Retail/E-commerce Distribution practice group.
This post is the first in a two-part series. Next we’ll provide a deeper analysis of the Midwest industrial market.