In “The Evolution of the Warehouse: Trends in Technology, Design, Development and Delivery,” authors Steve Weikal and James Robert Scott detail the industry advances, consumer trends and emerging technologies that are driving a rapidly growing sector. Although their work at the MIT Real Estate Innovation Lab regularly immerses both Weikal and Scott in the topic, working on the report by the NAIOP Research Foundation exposed them to a striking array of future business opportunities within the warehouse segment.
For you, what was the most interesting finding that surfaced in the course of researching this report?
SW: We always learn incredible things. An area that I thought was most intriguing was the convergence of uses, such as the examples of former retail space or below-grade parking being converted into automated distribution. One company is attempting to convert Class B and C office buildings in dense urban environments into micro distribution. Startup automation companies like Fabric are designing the automated systems to convert buildings that had previously been used for other uses.
There has also been a lot of discussion of taking empty retail big boxes and converting them into distribution centers. Prologis expects there could be conversion of 5-10 million square feet per year of dead big box by converting the existing structure, not scraping it. That’s not a big number and they say that’s only about 1% of total existing U.S. logistics real estate. But it’s something to get excited about as a concept.
Assumptions about existing product types are now being challenged and changed, and that could create new opportunities.
JS: Over the last 20-30 years, what we have seen in real estate has been the emergence of this new phenomenon, the convergence of the supply chain. Before, everything was separated. The whole way through this project, I felt that we were seeing the supply chain coming together. The design components, the factory itself, the production of certain products, the warehouse, the distribution and the retail were all merging into this one new area. Ultimately, you could see in the next 10-20 years the emergence of this new supply chain phenomenon. That was really insightful to me. I thought it was eye-opening.
Your report talks about dark store distribution centers, multistory warehouses, micro distribution, warehouse-as-service, ghost grocery stores and other new models of warehouses. What do you think of as the biggest emerging trends in warehouse models that Americans are likely to see in the next decade?
JS: We are seeing a lot of them already and they are becoming mainstream concepts. Space as a service, such as ghost kitchens, has definitely become more mainstream. The founder of Uber spent close to $1 billion on these over the last 12 months. Production-anchored, mixed-use developments go back to this concept of blending different real estate elements together. We are starting to see experiential retail at the front of buildings and automated fulfilment centers at the back.
One of the aspects within that piece is the micro fulfillment center. Recently, I was walking up Newbury Street, which is the main, high-end shopping street here in Boston. Obviously, retail is suffering immensely and every second or third store is boarded up. I started to enter two very, very big household name stores and discovered I can’t go into the stores anymore. I could only pick-up orders there. These are very large stores, maybe 5,000 to 10,000 square feet each, and located on the most expensive retail street in the city. But they are now fulfillment centers.
I thought that was extremely interesting. We talked about micro fulfillment centers in the report, but saw it taking place in suburban shopping malls and gradually moving into the centers of cities. I didn’t see that happening in the most expensive retail locations in cities and certainly not as quickly as this. I know COVID is a major factor in that and things may be different in six months’ time. But once the cat’s out of the bag, it’s hard to revert back.
There are opportunities to repurpose elements of real estate, like retail, that are suffering at the moment. All of these different concepts really help create value in places that have seen a downturn in their segment. There is so much potential, so much opportunity yet to be realized. People think e-commerce has arrived but it’s only getting started. JLL alone is expecting to need close to 1 billion square feet of space in the next four to five years.
This is the first in a two-part interview with Steve Weikal, lecturer, researcher and CRE Tech lead, MIT Real Estate Innovation Lab, and James Robert Scott, lead researcher, MIT Real Estate Innovation Lab, authors of “The Evolution of the Warehouse: Trends in Technology, Design, Development and Delivery,” a report published by the NAIOP Research Foundation. Read part two: Technology is Changing the Shape and Value of Warehouses.
