Why e-tailers still have brick-and-mortar needs

The retail sector of commercial real estate has gone through a transition over the past several years that has led to the emergence of a robust online retail — commonly referred to as “e-tail” — industry. As their e-commerce sales continue to boom, some e-tailers are now looking to open supporting fulfillment or distribution space for the first time, as a means of complementing their existing online businesses and better accommodating customer returns.

While online sales offer a number of advantages for both retailers and consumers, combining online operations with a brick-and-mortar presence provides today’s demanding consumers — and, therefore, the retailers selling to them — with the best of both worlds.

E-tail businesses typically require distribution space that can accommodate sophisticated omnichannel operations. Before entering the industrial/logistics real estate market, an e-tail business needs to work with a real estate adviser to closely assess its requirements and develop a thorough site selection strategy.

Industrial real estate prices in New Jersey have recently skyrocketed due to the unprecedented demand from e-commerce and other internet-related industries. Furthermore, the supply of viable industrial product is limited in New Jersey right now, and new construction is being pre-leased, meaning these e-tailers are entering an extremely competitive real estate market.

Once it’s determined that a company has a sufficient budget in place for launching or expanding its brick-and-mortar presence in the region, there are still many trade-offs that need to be considered as part of the supporting fulfillment or distribution center site selection process. For example, properties that offer immediate proximity to the major consumer-dense urban centers will likely have much higher prices, but that pricing can often be offset by lower costs of transportation and better access to labor. Additionally, state incentives tend to favor urban areas, which can further counterbalance the higher real estate, tax and common area maintenance, or CAM, costs.

Conversely, a less expensive site in an exurban or rural area will likely make it more challenging for a business to achieve same-day delivery, while also increasing transportation costs and posing challenges for attracting labor.

Identifying real estate solutions for solving complex e-tail issues involves deep industry expertise, including knowledge of the real estate transaction process, integrated systems, shipping and returns, and supply chain management. Finding the right team to handle these issues is more important than ever.

Bill Waxman and Mindy Lissner are executive vice presidents with CBRE.