The New Last Mile Logistics Space

The Real Estate Espresso Podcast

The New Last Mile Logistics Space

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The New Last Mile Logistics Space

Welcome to the Real Estate Espresso Podcast, your morning shot on what’s new in the world of real estate investing. I’m your host, Victor Menasce. On today’s show, we’re talking about the last mile. How far exactly is the last mile?

The term ‘last mile’ originates from the telecom industry. It used to refer to the final connection between the central office and the subscriber. It isn’t necessarily a mile and can often be much further. It’s that final leap between the company and the customer. Today we’re exploring a new demand for light industrial space.

When we think of e-commerce, we tend to visualize huge Amazon fulfillment centers. However, e-commerce goes beyond Amazon. Many companies are reducing their retail footprint and leaning on rapid order fulfillment to serve customers. Large retailers like Home Depot and Lowe’s are increasingly carrying a portion of their inventory in regional centers, rather than in each of their retail stores. It’s too costly to maintain sufficient inventory of lower demand products across all stores. This results in inefficient inventory management, with excess inventory in one location and a shortage in another. Hence, the need for ‘last mile logistics’.

The ‘last mile logistics’ could be the last 50 to 100 miles depending on the business. It consists of aggregating the inventory that might be sold through multiple channels like Amazon, eBay, Walmart, Target, Instacart, CVS, Blue Apron, Dollar Shave Club, and others. It’s one of the most crucial and most expensive steps of the logistics process due to challenges like dense traffic, urban areas, high labor costs, and high fuel and maintenance costs for delivering relatively small individual packages.

Previous favourites for businesses such as window suppliers, plumbers, and electricians, were flex multi-tenant industrial spaces. However, with work habits changing due to the pandemic, these 2 to 3,000 square feet facilities are increasingly playing a role in e-commerce.

The last mile isn’t just about the cost of the real estate, it also factors in the transportation cost of these small packages to the end user. By distributing from well-situated flex space, you can save a lot of money. The mismatch between demand and supply for this space seems structural and long-term. Looking ahead, supplying new flex space in markets where there’s an acute shortage, could be the next big play for 2025 and for the foreseeable future.

As you think about that, have an awesome rest of your day. Go make some great things happen. We’ll talk to you again tomorrow.

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