Melinda McLaughlin, head of global research with Prologis, shares the firm’s research into trends in the creation of order-fulfillment centers in urban locations, in response to the stellar growth of e-commerce.

The growth of real estate for logistics purposes accelerated during the COVID-19 pandemic, even though it had been a trend before the virus hit. The reason was rapid expansion of the market for e-commerce, which requires three times as much fulfillment space as that of brick-and-mortar retail selling.

E-commerce fulfillment centers need to be close to the consumer because of the need for rapid delivery. That means locating them increasingly within urban areas, where real estate is much more expensive. But the urban facilities tend to be smaller in size, working with the more traditional giant fulfillment centers located outside cities.

In recent years, notes McLaughlin, supply chains have been prone to an increasing number of disruptions, which has raised awareness by retailers and distributors of the need for new manufacturing and inventory models. “For retailers, if you don’t have the goods on hand, you’ve lost the sale,” she notes.

“The lesson learned from the pandemic is that the just-in-time supply-chain model isn’t really built to handle these kinds of large-scale disruptions,” McLaughlin says. As a result, merchandisers are looking to gain more control over their supply chains, by getting their hands on their goods as soon as they enter the country. Often that means finding ways around the severe congestion currently plaguing major ports, especially Los Angeles and Long Beach.

Even as they pivot toward smaller fulfillment centers in urban areas, retailers are looking to make their operations more sustainable. By shipping from such locations to the ultimate customer, they can cut overall transportation costs in half, McLaughlin says.