BOMA: We can't afford to ignore e-commerce

Real Estate Weekly, June 21, 2000 by Kurt R. Padavano

The Internet is yesterday's news. Today, the news is all about e-commerce. Everywhere you turn, headlines tout the latest introductory Web e-commerce site guaranteed to make your life easier. We certainly can't ignore it -- or the Internet. In fact, a study has shown that it took the Internet only nine years from its commercial introduction to penetrate 60 percent of households. Contrast this with the PC's 22 years; television's 31 years; radio's 37 years; electric light's 42 years; and telephone's 53 years to penetrate the same market-share!

Such a presence has affected our lives in ways we cannot begin to fully appreciate, and at the Building Owners and Managers Association (BOMA) International, www.boma.org has allowed us to deliver knowledge and solutions to our members and customers around the globe, 24 hours-a-day.

This shift from going to a retail store to surfing the net for everything from clothes to books to stereos will not just impact our association, of course. It will also have a significant impact on the real estate industry as well, but perhaps not in the same way you might think. During a conference held in Washington, D.C. by the Urban Land Institute, for example, a panel of representatives from North American property management firms discussed the impact of e-commerce on office and industrial properties. Not surprisingly, e-commerce is impacting the industry in much the same way throughout the country.

Luis Belmonte, managing director of AMB Property Corporation in San Francisco, Calif., pointed out that fulfillment -- getting products to consumers quickly and accurately -- has become the biggest end-result of e-commerce. "E-commerce will create an enormous demand for warehouse space, as the whole distribution chain has contracted and increased in velocity. Inventory is all done electronically, using bar codes, and it speeds everything up with greater accuracy.

He also predicted that more retail space would move to warehouses, as would some manufacturing space. Additionally, the product distributors will have to change the way their systems operate. "Distributors are accustomed to moving products in bulk, on huge pallets. E-commerce has changed that. Now, distributors handle individual shipments -- one book at a time, for example."

As a result of this focus on speed and delivery, the warehouses of the future will be near major transportation modes, such as airports, shipping ports or railroad stations, rather than in the suburbs or in a rural area. "Seventy percent of all air freight is carried in the bellies of passenger flights -- not cargo planes -- so if your warehouse is located near passenger tarmacs, you'll be set," Belmonte predicted.

Peter Bedford, CEO of Bedford Properties Investors, Inc., said that warehouses would also need larger turnaround areas, as trucks today are longer. They'll need flexibility for smaller vans, car parking and large trucks' turning radius.

"Additionally, many dot-coin companies and call centers are 24-hour operations instead of eight-hour operations. Should I get more rent for three times more usage? I think so," he said.

In an interview between Peter Pike of Pikenet and Mike Martin, regional development officer with First Industrial Realty, Martin explained that the biggest difference in leasing space to a dot-corn company is the speed of delivery.

"Every aspect of their business moves at a very fast speed," he said. "The race to build market share is very intense. Consequently, the demands they place on all their service providers are equally intense and time sensitive."

Dot-com companies will impact the industry in other ways as well: all four panelists assured conference delegates that tech companies today want space, not necessarily amenities. "They're casual companies that want bandwidth, parking, bike racks and dog runs. They want a warehouse look and feel -- rip out the drop-ceiling, spray paint it, and they'll love it," one panelist joked.

But lest you comfort yourself with the notion that it's only the high-tech companies going online, consider this: 54 percent of traditional retailers who responded to the Internet Shopping '98 survey said they had no plans to start online retailing.

This past year, only 24 percent of retailers responding to the same survey said they had no plans to begin selling their products online. E-commerce has arrived, and although the commercial real estate industry will continue to play a vital role in those companies' ultimate success, its role is a constantly evolving one. This is one trend you cannot ignore.