Tapping into E-commerce Growth: Last-Mile Distribution Hub Conversion

July 25, 2023

Post Category : borrow money, Commercial, Lending, Loan

Introduction

E-commerce has transformed the logistics landscape, with the ‘last mile’ becoming a key battleground for businesses seeking a competitive edge. The result is a burgeoning demand for warehouses converted into last-mile distribution hubs. According to Prologis research, tenants are willing to pay a premium of up to 50% per square foot for facilities offering such services. If you’ve recently invested in industrial real estate in California, a Last-Mile Distribution Hub conversion could offer a potentially rapid and high-yield return on your investment.

Key Reasons to Consider Upgrading

There are several compelling reasons why a Last-Mile Distribution Hub conversion makes sound financial sense:

Higher Rental Returns: E-commerce companies are prepared to pay a premium for access to last-mile facilities. You could significantly increase your income per square foot, accelerating your return on investment.
Growing Demand: The e-commerce sector is developing rapidly, increasing demand for last-mile distribution facilities. This trend will likely continue, offering you the chance for long-term income growth.
Enhanced Asset Value: By converting a warehouse to a last-mile distribution hub, you increase the value of your asset, positioning it to benefit from emerging trends in the logistics sector.

Examples

Amazon, San Francisco – Amazon converted a 100,000-square-foot warehouse in San Francisco into a last-mile distribution hub for $1 million in 2020. The conversion included the installation of new racking, conveyor systems, and loading docks. The warehouse is now able to process up to 10,000 packages per day. The warehouse is located near a major highway and is within easy reach of residential neighborhoods.
Instacart, Los Angeles – Instacart converted a 50,000-square-foot warehouse in Los Angeles into a last-mile distribution hub at a cost of $500,000 in 2021. The conversion included the installation of new refrigeration units and loading docks. The warehouse is now able to process up to 5,000 orders per day.
Wayfair, San Diego – Wayfair converted a 30,000-square-foot warehouse in San Diego into a last-mile distribution hub in 2022. The conversion, costing $250,000, included the installation of new shelving and loading docks. The warehouse, located near several major retailers and within easy reach of many residential neighborhoods, now processes up to 3,000 orders daily.

These are just a few examples of the many warehouses in California that have been converted into last-mile distribution hubs. The demand for these facilities will only increase in the years to come as e-commerce continues to grow.

Incentives

California offers several incentives to investors looking to undertake Last-Mile Distribution Hub conversions:

Job Credits: California’s New Employment Credit (NEC) offers tax credits to businesses that create jobs in designated areas. You could qualify if your conversion project creates new jobs.
Energy Efficiency Incentives: The California Energy Commission offers incentives for businesses that reduce energy usage. You may be eligible for these incentives if your conversion project incorporates energy-efficient systems.
CIPs: Capital Improvement Projects (CIPs) that improve infrastructure can qualify for special financing under California law. Your conversion project may be eligible if it involves substantial infrastructure improvements.

How to Get Started

You should ask several key questions before embarking on a Last-Mile Distribution Hub conversion project. These include:

What is the potential demand for last-mile services in my location?
How much will the conversion cost, and how will it be financed?
What incentives am I eligible for, and how do I apply?

You can find more information by consulting with a commercial real estate agent or a logistics consultant.

Payback Period

You want to get your investment into the black quickly, and a Last-Mile Distribution Hub is no exception. If Amazon and other big e-commerce partners haven’t invested in your location yet, it’s only a matter of time. But this particular land grab is going on right now, so consider it a limited-time opportunity.

Conclusion

Converting your warehouse into a Last-Mile Distribution Hub can be a lucrative investment strategy, offering the potential for high rental returns, sustainable income growth, and increased asset value. With the proper planning and financing, you can transform your property into a key player in the logistics sector, reaping the benefits of this rapidly growing market. Contact Evoque Lending’s Commercial Team today to explore your Last-Mile Distribution Hub conversion project financing options.