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increase their proximity to consumers.”
NEW TERMS FOR NEW TIMES
In the meantime, the shifting landscape calls for a new way
of defining logistics real estate, according to McLaughlin—
one that creates a clearer picture of the different types of
facilities companies are using to meet changing service-level
expectations. Prologis has created a model of what it calls
“the modern supply chain” (see Exhibit 1) that goes beyond
traditional property definitions such as “warehouse/distri-
bution” and “flex” to identify facilities based on where they
are used, how they are used, and what they look like. The
goal is to develop a common language and a standardized
way to talk about the different functions buildings play
along the supply chain, she says. “Last touch” is one of four
categories the company has developed; the others are “city
distribution,” “multi-market,” and “gateway.”
As McLaughlin explains, the Prologis model defines the
four types of logistics properties as follows:
; “Last-touch” properties can reach large, dense, affluent
populations within hours. These buildings typically are the
oldest and smallest, because they are in infill locations.
; “City distribution” properties are well-positioned to
provide one- to two-day shipping to an entire large market.
These buildings tend to be small to mid-sized and located
in urban areas.
; “Multi-market” distribution facilities must have the right
balance between location and functionality. These buildings
tend to be newer and larger as well as located at key transportation hubs at the periphery of major urban areas.
; “Gateway” facilities are multi-market buildings that
incorporate access to major sea and intermodal ports.
In addition to creating a common language, the frame-
work helps put the changing logistics landscape into per-
spective, providing a snapshot of the different puzzle pieces
required to get goods through the supply chain as quickly
and efficiently as possible. For his part, Chung says he
expects the evolution to continue, noting that the changes
occurring in logistics infrastructure are “not a one-off twist.”
“It’s the start of a transformation of logistics and supply
chain,” he says. ;
McLaughlin explains. The mar-
ket is seeing high demand, lim-
ited new supply, and strong rent
growth for such facilities.
A report from commercial
real-estate firm CBRE showed
that demand for “well-located,
small light-industrial properties”
continued to outpace demand for
larger warehouses during the first
half of 2019, for instance. The
firm found that urban facilities with 70,000 to 120,000
square feet remain in high demand because of increasing
economic activity, urban population growth, and consumers’ same-day delivery expectations. The availability rate
for such facilities has dropped by nearly 4 percentage
points to 7.4% over the past five years, the firm said, while
their rents have climbed more than 30%. In comparison,
warehouses of more than 250,000 square feet saw rent growth
of 16% during the same period. CBRE said strong
demand for smaller warehouse properties will continue “as
retailers and logistics operators expand their networks to
EXHIBIT 1
