Image credits: Mark König
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Analysis

Real Estate’s Role in the E-Commerce Boom

By Lorenzo Núñez | Wed, 12/29/2021 - 11:47

The pandemic brought with it a boom in e-commerce. Consumers are moving towards digital solutions and as consumers move to recently acquired behaviors, logistics solutions will be challenged creating opportunities for real estate developers.

 

Entire businesses and industries had to completely reinvent themselves to survive the pandemic. Those that failed to do so, disappeared. Such is the case of Best Buy Mexico, which was unable to compete with Amazon in a fully online environment. For Best Buy, the pandemic was the drop that tipped the glass, ending its business in Mexico. “Despite the extraordinary work, the effects of the pandemic have been very profound and it is not viable for us to maintain our business in Mexico," explained former President of Best Buy Mexico Fernando Silva, a week after Best Buy’s retirement announcement. “We learned what was not sustainable for our strategy and the experience we want to give our customers. Our resources will be focused on the opportunities in front of us. As a result, during the quarter, we made the difficult decision to exit Mexico,” said Corie Sue Barry, CEO of Best Buy.

 

The pandemic represented a transformation in the way we shop. Mexico experienced an e-commerce boom just six months into the pandemic, with penetration growing to 39.3 percent in 2020 and an expectation to reach 55 percent by 2024, according to the Mexican Association of Online Sales (AMVO). In 2020, e-commerce generated a total of US$15.8 billion (MX$316 billion), which represents 9 percent of total retail in the country and growth of 81 percent compared to 2019. Within this environment, only those that adapted were able to survive and thrive. “The impact of [the pandemic] on logistics companies is comparable to that experienced by thousands of businesses. In terms of customers, the pandemic generated an increase of 10 times the number of clients within three months,” explained Iñaki de la Peña, Country Manager at Dostavista, in an article for MBN.

But for e-commerce to really thrive, the logistics network still represents a challenge, particularly in terms of warehousing and distribution infrastructure. “Logistics is not an isolated activity or just part of the business; it directly impacts the entire operation and the bottom profit,” Andrés Birlain, CEO of Rivus Material Handling, told MBN.  

 

Ensuring smooth delivery, managing the digital infrastructure and protecting supply chain channels are the main challenges that many grocery retailers had to deal with in the past year. According to McKinsey & Company, almost half of UK shoppers state they would not return to old buying patterns even after all the restrictions are lifted. Even prior to the pandemic, the industrial real estate market was already nearly running at full gas. E-commerce alone accounted for 16 percent of total leasing in 2020, according to JLL reports. “The pandemic sent shockwaves to the supply chain, forcing retailers to look at how they track and stock inventory,” said Mehtab Randhawa, Director, and Kelsey Rogers, Senior Analyst of JLL Industrial Research in a statement. Distributors are having an increasingly difficult time finding warehouses and distribution centers. In addition, product demand is only expected to continue growing in 2021, which proves beneficial to industrial states and companies.

Among the winners of the pandemic in terms of industrial activity are regions like Toluca, Cuautitlan, Tultitlan and Tepozotlan, which remained at the forefront of industrial real estate investment. Toluca, for instance, combines the presence of private and public industrial parks. Companies like Prologis and Parks, which both have national coverage and extensive experience in the market, are the main drivers of this real estate development, reported the Real Estate Platform Solili.

 

Toluca is no stranger to new industrial construction projects. It was not too long ago when BTS Development started building the Campus Cuautitlán I Industrial Park, which aims to address the needs of the retail industry in the State of Mexico. "We are at the right time, in the right industry. It is a market that has not stopped; it is booming," said Miguel Ángel Beltrán, Commercial Director of O'Donnell, during his participation in the Grupo T21 event, Diálogos Empresariales de Logística. O’Donell recently teamed up with Mexico-based logistics company Estafeta to establish the largest automated hub in the world. This new property will substantially improve Estafeta’s courier and parcel services, while improving the shipping process around the country to tackle the e-commerce boom. "This hub is specialized in e-commerce and will allow us to interact in an agile manner with all our customers. It will be a key element in the design of service strategies and will take advantage of and complement our transportation, air and human resources infrastructure, " said Jesús García.

Other major projects in the State of Mexico that have contributed to the e-commerce boom include the expansion of e-commerce and retail giant Amazon in Mexico with its new logistics center located in Tepozotlan. This logistics hub aims to create new job opportunities and shorten delivery times in the country’s central region. “We are very happy to meet with Governor Alfredo del Mazo to announce our plans for expansion in Tepotzotlan. We will keep working with him and the State of Mexico,” said Amazon Mexico Public Affairs on Twitter

The data used in this article was sourced from:  
Mckinsey, MBN, the Real Estate Platform Solili, Diálogos Empresariales de Logística.
Photo by:   Mark König, Unsplash
Lorenzo Núñez Lorenzo Núñez Junior Journalist & Industry Analyst