U.S.

Industrial Services
SPOTLIGHT REPORT
January 2018

The E-commerce Revolution:

How Labor, Automation and Amazon
Will Impact Industrial Real Estate
Key Takeaways
> E-commerce has shifted the dynamics of consumer demand
and occupier supply chains perhaps more than any other force
in the last century. The shift from distributing bulk products to
retailers to a model of distributing individual products directly
to consumers has prompted tremendous change in warehouse
operations and requirements.

> E-commerce operations tend to have higher employee counts

(two to three times more than traditional warehousing) and
greater automation compared with more traditional distribution
centers. Because of this, modern warehouses require more
parking, cross-docks, higher clear heights and greater power
loads than traditional warehouses. The need for these modern
amenities has helped stimulate the record industrial development
throughout the U.S. and will require more redevelopment of
older product in in-fill locations, as relatively few older industrial
buildings are appropriate for supporting e-commerce.

> With online shopping rising sharply and labor constraints

widening, more companies are utilizing automation hand in hand
with their employees as a way to reduce the human work burden
and increase worker productivity, thereby lowering the total
labor need. Automation helps optimize operations by performing
redundant tasks that would typically be performed by
human employees.

> No company has had a greater effect on shopping patterns, the need
for industrial labor and the usage of automation than Amazon. The
e-commerce behemoth operates more than 300 fulfillment centers
in the United States alone, with another 36 in the pipeline. In turn,
Amazon has driven change in occupier supply chain logistics and the
industrial buildings that house them.

> With the greater use of automation due to its increased

importance in supply chain strategies, future industrial real
estate demand will be closely linked to the availability of qualified
labor. Metros like Detroit with specialized engineering workers,
and markets in Georgia including Atlanta and Savannah with
a plethora of industrial automation training opportunities will
continue to thrive.

> The increasing use of technology in warehouses is fueling the

need for greater and more reliable power. Solar power and
individual building generators are becoming more common in
distribution centers. The Greater Phoenix region plans to provide
more solar power for distribution, which will be an advantage for
the market going forward.

> While the distribution industry is in a state of constant change,

whether it be demand drivers, labor, technology or building
amenities, we can expect industrial product fundamentals to
remain strong, as new product will continue to be built and
obsolete product will need to be renovated or replaced to keep up
with this demand for the foreseeable future.

2 The E-commerce Revolution | Colliers International

Introduction
E-commerce has shifted the dynamics of consumer demand and,
thus, occupier supply chains, perhaps more than any other force in
the last century. This shift has been a boon to industrial real estate
demand as occupiers need more warehouses in more locations
to get products to consumers quickly. E-commerce demand has
also changed the inner workings of the modern distribution center.
Distribution centers traditionally would receive large pallets of
product from ports or manufacturing plants to supply brick and
mortar stores. Now retailers increasingly send products directly to
end consumers from these warehouses.

This explosion of e-commerce demand has been a boon to

industrial real estate over the past decade with record absorption,
asking rents and occupancy rates. While big-box distribution
centers (buildings with 200,000 sf or more) in core markets have
historically been the main beneficiaries of the e-commerce boom, in
the past 24 months demand has increased in secondary locations,
especially near inland ports and seaports, as well as smaller
buildings near highly populated areas to support last-mile delivery.
This shift in location is caused by the drive to get products more
quickly to consumers, who increasingly demand next-day and even
same-day delivery.

While e-commerce has driven industrial demand to new heights,

it has also created unprecedented demand for labor. At the same
time, the U.S. economy is in the midst of one of its largest periods
of expansion, leading to strong job growth and low unemployment
rates. This combination of factors is increasing competition for
labor and, in some instances, causing a shortage of
available personnel.

In this report we investigate these trends in more detail, assess

how the availability of labor is becoming a crucial part of site
selection, explore how automation and other technologies are
impacting and will affect warehouse labor participation and, finally,
determine what all of this means for industrial real estate demand
going forward.

Colliers International | The E-commerce Revolution 3

E-commerce Sends Industrial Occupiers Searching for Available Labor
E-commerce accounts for a large and growing share of the retail
market. Since 2009, e-commerce sales have risen an impressive
158%, compared with a 21% rise in total retail sales. Over the
past 12 months ending Q3 2017, online shopping sales rose an
impressive 15.5%, versus only 4.3% for total retail sales. This
significant increase in e-commerce demand has sent occupiers
scrambling to service a growing number of people preferring to
purchase items online. It has also upended the logistics industry.
E-commerce has created the need for larger and more complex
distribution buildings closer to shoppers, requiring greater use of
automation and technology to speed up the distribution process,
and significantly increasing the need for labor to sort and package a
greater volume of packages sent directly to the consumer.
Change in Real Sales – 2009 to Current
E-commerce vs. All Retail Sales
E-commerce +158%
While e-commerce has prospered, brick and mortar retail has
stalled, with some 7,000 stores closing in 2017. These store
closures have cut a significant amount of jobs. From October 2016
to October 2017, brick and mortar retail trade has shed over 72,000
jobs according to the U.S. Bureau of Labor Statistics (BLS), its
largest 12-month decrease since 2009. The number of job losses
in the industry are expected to continue in the coming months as
more department store chains are expected to close locations,
some of them investing instead in their e-commerce capabilities.
A possible landing place for these employees could be in the
distribution industry which provides similar wages and access
to the same products in these workers former positions. Since
2009, warehouse/distribution employment (warehouse, storage
and non-store retail) has increased by over 400,000 jobs in the
U.S. according to data from the BLS, an increase of 14%, much
higher than the 9% overall non-farm job growth during the same
time period. In the last 12 months alone, the sector has added over
62,000 jobs nationwide and now employs over 1.5 million people,
37% of which are in e-commerce distribution.

With e-commerce projected to continue to grow strongly in the

All Retail + Food Services
Core Retail*
+24% coming years, and more brick and mortar stores slated to close,
distribution occupiers will look to attract former brick and mortar
employees to join the distribution industry. Some ways in which
companies are looking to entice workers include full-time positions
+21% with higher hourly wages, and tuition reimbursement for employees
to train in warehouse technologies.

0% 20% 40% 60% 80% 100% 120% 140% 160%

Quarter-Over-Quarter Job Gains/Losses
*Total Retail less auto-related, online, food and food service, department stores, and building
materials. Current = last 12 months. 150.0
Thousands

Source: U.S. Census Bureau and Colliers International 100.0

50.0
0.0
E-commerce effect on demand for labor has been magnified by its
-50.0
heavy employee counts and significant seasonal spikes compared
-100.0
with nonfulfillment-driven operations. Traditional warehouse
-150.0
facilities that supply brick and mortar stores or distribute wholesale -200.0
goods have an average employee count of one employee per 2,000 -250.0
square feet according to industry insiders. By contrast, e-commerce -300.0
fulfillment centers, which specialize in smaller orders going directly
January 2008

January 2009

January 2010

January 2012

January 2013

January 2014

January 2015

January 2016

January 2017
January 2011
July 2008

July 2009

July 2010

July 2012

July 2013

July 2014

July 2015

July 2016

July 2017
July 2011

to consumers can have an employee count as low as one employee

per 700 square feet. Thus, e-commerce occupiers can require two
to three times the amount of labor as a traditional distribution Brick and Mortar Retail Warehouse Distribution
user needs.
Notes:
Brick and Mortar Retail = Total Retail – Non Store Retail
Warehouse Distribution = Warehouse Storage + Non Store Retail

4 The E-commerce Revolution | Colliers International

The Amazon Effect
No company has had a greater effect on e-commerce, labor,
warehouse technology or the distribution industry in the past
decade more than Amazon. According to data from Cowen & Co.,
over 42% of U.S. households, 53 million in total, are now part of
Amazon’s Prime membership. At the time of this report, Amazon
operates more than 300 fulfillment centers in the U.S. with another
36 in the pipeline, according to MWPVL, a leading supply chain
and logistics consultant. Amazon’s facilities include more than
100 million square feet of industrial space across the U.S., making
Amazon the top industrial occupier in the U.S. the past decade.
These facilities have significantly increased demand for
warehouse labor.
utilizing robots to accomplish work once handled by employees. In
2014, the company began rolling out robots to its warehouses using
machines originally developed by Kiva Systems, a company Amazon
bought two years earlier and renamed Amazon Robotics. Amazon
now has more than 100,000 robots in use around the world, and
it has plans to add many more. The robots make work less tedious
and physically taxing for warehouse workers, while also enabling
the kinds of efficiency gains that enable a customer to order dental
floss after breakfast and receive it before dinner. Additionally, these
robots are better suited to support the seasonal spikes typical
e-commerce fulfillment operations: an increasing share of online
shopping is for gifts.

In August 2017, Amazon said it plans to add 100,000 full-time
U.S. employees to its ranks over the next 18 months, many of
whom will work in Amazon’s expanding warehouse network. So if
the warehouse ratio of 1 employee per 700 square feet that was
previously mentioned holds true, and Amazon is planning to utilize
many of these new employees in distribution centers, Amazon will
be in line to add a significant amount of new warehouse space
in the coming years. This hiring binge by Amazon is not new as
the company has grown dramatically, adding 150,000 U.S. jobs
since 2011. Amazon’s growing footprint is further reducing the
available labor pool in markets that are in need of more labor for
its distribution needs. Many companies are taking the locations of
Amazon’s warehouses into account when choosing locations for
new facilities to avoid competing for a limited pool of workers.
While Amazon continues to disrupt the distribution labor market,
it is also on the forefront of automation. They are finding new
ways to better handle the complexities of e-commerce facilities by
The robots also reduce the amount of walking required of workers,
making Amazon “pickers” more efficient and less tired. The robots
allow Amazon to pack shelves together like cars in rush-hour
traffic, because they no longer need aisle space for humans. The
greater density of shelf space means more inventory under one
roof, which means better selection for customers.
For now, this technology is not causing people to lose jobs because
online shipping is surging and certain warehouse tasks, like picking
individual items off shelves, with all their various shapes and
sizes, require human labor. In fact, Amazon has added 80,000
warehouse employees in the U.S. since adding the Kiva robots.
While automation and technology currently work hand in hand with
human labor, Amazon continues to research technology to lower
its need for human labor in an environment where it’s harder to
find. One way Amazon works to stay on top of state-of-the-art
technology trends is hosting an annual contest to encourage more
innovation in automation.

Amazon Top Industrial Occupier Post Recession

FACILITY TYPE # OF FACILITIES SQUARE FEET

Fulfillment Centers and Redistribution Centers 122 91,360,406

AMAZON.COM Regional Sortation Centers 46 15,815,798
Delivery Stations 69 5,849,291
AMAZONFRESH Pantry/Fresh Food Distribution Centers 32 4,604,653
AMAZON PRIME Prime Now Hubs 53 1,809,741
TOTAL 322 119,439,889

Source: MWPVL International

Colliers International | The E-commerce Revolution 5

Automation – The Answer to Labor Constraints?
With e-commerce rising sharply and labor demand increasing, more
companies are utilizing automation hand in hand with employees
as a way to reduce the human work burden and increase worker
productivity, thereby lowering the need for labor. Automation helps
optimize operations by performing redundant tasks that are typically
performed by employees. Automation removes waste from picking
orders, which include travel time and motion. Utilized correctly,
automation enables workers to focus on tasks that only humans can
do, while leaving more routine tasks to the equipment.

The automation market is expanding and rapidly driving interest in

producing more technology to assist in distribution. One popular
way to lower the burden on workers is through “Goods-to-Person”
(GTP) technologies: instead of pickers going to an item, the
items are brought to the worker. One of the most common GTP
technologies being implemented in warehousing is Automated
Storage and Retrieval Systems (ASRS). While many industries are
utilizing ASRS, it is most heavily used in the food and beverage
industry, which continues to be one of the strongest demand
drivers for industrial real estate. Kroger, one of the largest grocery
companies in the country, was one of the first to utilize ASRS in its
distribution model.

Pick-to-Light (PTL) Systems are also gaining in popularity,

especially in e-commerce fulfillment centers. PTL utilizes lights
above racks or bins to direct pickers to a particular item, much
like modern parking lots point drivers to available spaces. When a
worker scans a barcode, a light illuminates the appropriate bin and
the worker picks the item for the order. Pick-to-light is a proven
method to increase fulfillment capabilities, especially during peak
seasons, and another example of technology working hand in hand
with human labor to increase efficiency.

Robotics has been transforming warehouse work to increase

efficiencies and lower the burden on human employees. Kiva
has been a pioneer in this area, but with its purchase by Amazon
several years ago they are no longer supplying other companies
with robotics technologies. This has created a myriad of robotics
startups to supply retailers, wholesalers and third-party logistics
companies with this technology. Companies at the forefront of the
robotics distribution market include Knapp, whose Open Shuttle
technology utilizes trackless navigation. Massachusetts-based
Locus Robotics works with its partner, Quiet Logistics, to deploy
autonomous robots to reduce picking time and increase efficiencies.
Swisslog CarryPick uses Quick Response (QR) Codes placed on
floors to retrieve mobile product racks and deliver to manned work
stations. Other autonomous warehouse robots that are gaining in
popularity include the GreyOrange Butler, Fetch Robotics Freight,
the Scallog System and the Hitachi Racrew.

6 The E-commerce Revolution | Colliers International

How are Automation and Labor Effecting Warehouse/Distribution Facilities?
While labor availability is a major factor in the site selection
process, once a site is selected the distribution center requires
various amenities to service a modern fulfillment operation. The
need for more labor has increased demand for parking, with
more land needed for parking spaces than ever before. Cross-
docks or large truck courts are gaining in popularity because of
the opportunity to use this extra space for parking. Additional
employees increase the need for other amenities as well, including
restrooms and break room space. With automation technology
comes the increased need for power and additional space for
technology storage. Modern conveyor systems require higher clear
heights, and strong floors to support them. Below is a list of other
amenities necessary for a modern fulfillment center:
Amenities in Modern Fulfillment Centers
> Cross Dock Configuration
> Need for Trailer and Auto Parking (45% Coverage or Lower
to Accommodate)
> Expansion / Flexibility
> Higher Clear Height (36’- 40’)
> More Power in Warehouse
> Increased Design Features (More Office Space / Employee
Breakrooms / Restrooms)
> Super Flat Floors
I also asked Ms. Welch which future build-outs will be necessary
to accommodate fulfillment occupiers in the near future. Ms. Welch
states, “With many of these buildings supporting large numbers
of employees, a lot of the trends that have caught on with office
buildings will transfer over to industrial, particularly with amenities.
Fully air-conditioned break rooms and cafeterias, recreational areas
and small retail footprints are gaining in popularity and will be a
part of new industrial development in the future.”
Increased build-outs to accommodate more labor and automation
are essential to meet occupier requirements, but these build-outs
can be expensive. In addition to robust demand, these increased
build-outs have helped increase taking rents, particularly in the big-
box sector. At midyear 2017, the average first-year taking rents for
big-box buildings in North America was $4.40 per square foot per
month NNN, its highest rate in over a decade.
Historically, increased rents could depress future demand for
industrial space, but the explosion of e-commerce has altered
this dynamic. E-commerce has increased transportation costs
significantly, so occupiers are leasing more space to get products
closer to consumers. Distribution center rents remain a relatively
small part of the overall supply chain cost breakdown, in part
because the pace of rental increases has stabilized in 2017. But if
industrial build-out requirements continue to rise along with user
demand, rents could soar, leading to a shift in demand toward
industrial space in markets with cheaper rates, or an overall
slowdown in fundamentals.
U.S. Big-Box Historical First Year Taking Rents
(PSF/YR)

> 8” Floor Slab, Ductilcrete $5.00

$4.50 $4.39 $4.40

> Drive-Around Truck Court $4.00 $3.83

$4.05

$3.69 $3.72
$3.46 $3.49 $3.48
$3.50
> On Site Truck Queuing Lanes
$3.00

> Separate and Secured Auto and Trailer Yards / Entrances $2.50

$2.00

To obtain a first-hand look at the changes occurring in warehouse/ $1.50

distribution facilities to facilitate increased labor and automation,
$1.00
I spoke with Nicole Welch. Ms. Welch is Senior Vice President
at Clarion Partners, one of the largest industrial investors in the $0.50

country. I asked Ms. Welch what specs are being included in new $0.00
2009 2010 2011 2012 2013 2014 2015 2016 Midyear 2017
warehouses to accommodate technology in modern distribution.
According to Ms. Welch, “It depends on the size of the building and Source: Colliers International
location, but Clarion is focused on providing the right clear height,
floor slab thickness, column spacing, power, truck court depth and
ability to accommodate higher auto and trailer parking counts. A lot
of tenants are hyper-focused on employee safety and mindful of a
clear separation between truck and auto parking, especially with
growing employee counts.”

Colliers International | The E-commerce Revolution 7

Site Selection: Finding the Right Location for Your Business
With unprecedented pressure being placed on occupiers to keep pace with consumer demand, site selection is becoming more
detailed and requires a fresh perspective. One of the foremost experts on industrial site selection is John Warden. Based in
Atlanta, GA, Mr. Warden joined Colliers International in 2017 and leads Colliers’ Site Selection Services practice, specializing in
manufacturing, distribution and e-commerce fulfillment facilities, with responsibility for planning, implementing and managing
location consulting engagements including site selection analyses, operating cost studies and incentive negotiations. John has
35 years of experience in strategic planning and research, and was formerly Director of Economic Development Research at
the Georgia Tech Research Institute before co-founding The Walker Companies in 1987. I spoke with Mr. Warden, who provided
the following insightful information on the current trends in site selection:

How has demand from e-commerce changed site selection for major occupiers?

E-commerce has some unique labor demands. For example, we can now perform very detailed analyses of micro-market
labor resources where we are comparing labor metrics in user-defined grids. The grid size can be customized based on the
geographic scope of the analysis. For example, on a national search we may start with a grid of 25 square miles, and reduce it
to 1 or 2 square miles for more tightly defined study areas. A large e-commerce operation can require 1,000 or more full-time
workers, and add an additional 1,000 in the third and fourth quarters. So there is a double labor-related site selection threshold
to meet: the ability to staff a large full-time workforce, plus the surge capacity to quickly ramp-up to meet the seasonal need.

This requires a more granular analysis of labor resources to ID locations that can meet both requirements, and eliminates many
locations that would be desirable otherwise for a more traditional distribution operation with smaller staffing requirements.

With an economy near full employment, and the need for warehouse labor intensifying, how is site
selection changing in general to help occupiers find the labor they need?

Colliers has responded to this challenge by leveraging technology to develop new analytical tools to identify the best locations
for these labor-intensive facilities. For example, we can now perform very detailed analyses of micro-market labor resources
where we are comparing labor metrics in user-defined grids, typically one square mile or 25 square miles. We can evaluate age
distribution, employment by industry, educational attainment and commuting patterns by income levels to identify large clusters
of grid cells with attractive attributes that would otherwise be invisible if the data were analyzed at the county level, which is
the more traditional approach. These studies can cover the entire U.S. or focus on user-defined geographies.

We are also developing a cloning tool, which will allow us to identify labor markets most similar to the best-performing
operations in the client’s distribution or manufacturing network. We analyze the labor characteristics in each of the client’s
existing operations, stratifying each labor market based on performance of the facility. We can then clone the best-performing
labor markets and identify locations elsewhere in the U.S. with characteristics most similar to these high-performing operations.

What site selection services can you provide to ensure a company finds the right site for their
labor needs?

In addition to the computer modeling described above, we provide on-site labor research in finalist communities, in which we
interview existing employers to develop real-time data on wage rates and wage progressions, turnover and absenteeism rates,
labor availability and quality, policies regarding drug testing and background checks and other important qualitative feedback on
the labor market from employers that experience it every day.

CONTACT
John Warden
Executive Vice President | National Director
Colliers Site Selection Services
+1 404 877 9296
john.warden@colliers.com
What Does the Future of Labor and Automation Mean for Industrial Real Estate?
Today’s automation technology is used hand in hand with labor to
increase efficiencies and lower the need for additional labor. While
automation is improving efficiencies, the need for human labor is
still growing, providing thousands of jobs across the country. In the
future, if the technology that can replace human labor does become
available, companies will have to decide whether to fully automate
distribution or keep human labor involved. This decision will involve
assessing the availability of labor. Many companies are hoping
higher wages and the ability to work with technology will entice
younger workers to enter the field. Without sufficient new workers,
automation will gain even further ground.
Industrial real estate demand will be closely linked to both the
availability of labor and the greater use of automation because of its
increased importance in companies’ supply chain strategies. In the
short term, because of the increased competition for workers, the
availability of labor in a location will gain importance compared with
other decision factors like transportation routes, and building costs
and functionality. Occupiers will not only assess labor availability
in markets but will also increasingly consider education levels
when reviewing demographics, as warehouse employees will be
required to work with new automation technology more frequently
in the future. Moreover, distribution centers will also require onsite
technicians to ensure machinery is running smoothly; areas with
higher engineering populations like the greater Detroit region
could prosper.
Likewise, industrial markets with a trained workforce and/or an
educational system that focuses on modern distribution should
outperform. While many markets have these programs available,
ease of access will be key in the future. Markets in the state of
Georgia including Atlanta and Savannah will continue to prosper in
the coming years because of the state’s Quick Start Program. This
group serves as the interface between new employers in Georgia
and the technical colleges for training the existing workforce for
new jobs. Quick Start concentrates on training people already in
the workforce in job-specific skills development including
modern distribution.
With the rising use of technology in warehouses, the need for more
and reliable power is ever more vital. Material handling equipment will
become more battery based as opposed to gas in the coming years
and require reliable power to charge these systems. While cheaper
electricity rates and/or solar power provided by individual markets
will be a valuable incentive, the reliability of power in a facility is also
a priority: if power goes out in the distribution center of tomorrow,
business stops. Thus, individual building generators (potentially
provided by the developer) will be more common in distribution
centers and developers and/or cities that can provide these reliable
sources of power will have a competitive advantage. Solar will also
gain in importance as an additional and greener source of power. The
Greater Phoenix area in partnership with SRP provides a commercial
solar electrical program, designed to incentivize renewable energy in
distribution. Program’s like these will be key to a growing number of
occupiers using heavy power and will help draw them to regions like
Greater Phoenix that provide it.
As the needs of occupiers evolve, more modern distribution centers
will be required. Markets with available land to develop buildings
in areas with ample/educated labor, reliable power and building
amenities including the Inland Empire and Dallas-Fort Worth will
prosper, with continued positive absorption and rental rate growth.
However, in the coming years, many markets near areas with
larger populations including Los Angeles County and Northern New
Jersey will further mature with little to no raw land to develop.
While in the past occupiers and developers would move to areas
with land to develop, the need to be near large population centers
to access consumers and labor will require occupiers to stay and
significantly increase the need for redevelopment. Markets can only
be successful in the coming years if local government entities are
open to industrial redevelopment and can streamline the process of
approvals. These markets with the government willing to approve
industrial redevelopments will post robust fundamentals even as
land becomes scarce.
With the distribution industry in a state of constant change, whether
it be demand drivers, labor, technology or building amenities,
we expect industrial product fundamentals to remain strong and
elevated well above the incremental demand from economic growth
for the foreseeable future. Because of this, new industrial product
will need to be built and obsolete product will need to be renovated
or replaced to keep up with this demand for the foreseeable future.
For more information on current trends in
commercial real estate, please visit
Colliers Knowledge Leader at
https://knowledge-leader.colliers.com/.
Colliers International | The E-commerce Revolution 9
 INDUSTRIAL SERVICES CONTACT
Pete Quinn, SIOR
National Director, Industrial Services | USA
+1 317 713 2107
pete.quinn@colliers.com

RESEARCH CONTACT
James Breeze
National Director of Industrial Research | USA
+1 602 222 5184
james.breeze@colliers.com

Andrew J Nelson
Chief Economist | USA
+1 415 288 7864
andrew.nelson@colliers.com

Copyright © 2018 Colliers International.

The information contained herein has been obtained from sources
deemed reliable. While every reasonable effort has been made to ensure
its accuracy, we cannot guarantee it. No responsibility is assumed for
any inaccuracies. Readers are encouraged to consult their professional
advisors prior to acting on any of the material contained in this report.