CREJ

December 2021 — Office & Industrial Quarterly — Page 27 www.crej.com INDUSTRIAL — INVESTOR INSIGHTS H ow has industrial real estate in the Rocky Mountains evolved from a once over- looked sector by the national occupiers and institutional investors to one of today’s darlings of commercial real estate? In short, this evolution is driven by three major themes, each of which strengthens the others: the fundamental shift in consumer behavior, the decentraliza- tion of the national supply chain and a change in population growth relative to gateway coastal states in the west. n The fundamental shift in purchasing behavior by businesses and consumers. Long gone are the days when that Terrell Davis jersey could only be pur- chased from the shelf after driving 5 miles in traffic both ways. Today, we live in a cul- ture of immediacy. The certainty and immediacy when purchasing a prod- uct in five minutes on a smartphone is a significant enough feeling of control for most people that they’re willing to wait a day or two (rarely) to receive that product. This online purchas- ing power we hold today is the driv- ing force changing businesses and consumer behav- ior, a phenomenon often referred to as the “Amazon effect.”According to a Nov. 18 report issued from the U.S. Department of Commerce, e-commerce, which accounted for less than 5% of total retail sales in 2012, continues to gain its fair share of the mar- ket at over 13% today. In the third quarter, e-commerce retail sales were up 6.6% year over year on an adjusted basis. This acceleration in consumer behavior is expected to continue as e-commerce extends its reach across the coun- try, to markets with populations of even less than 100,000. Manufac- turers, suppliers and employees are demand- ing speedy deliveries to remain competitive in the marketplace – loy- alty is now not as much relationship driven, as it is performance driven – and e-commerce buy- ers are quickly shifting their purchasing power to the fastest and most reliable common denomi- nator. This is a compelling driver for industrial real estate – these industrial occupiers are expected to continue to stretch their footprints to meet the consumer in their backyard. Today, to be a top contender in the list of online options evaluated by the consumer, companies ideally need their inven- tory within a 30-mile radius of their expected end user. n Decentralization of the supply chain. This end user distribution footprint – often referred to as “last-mile distri- bution” – is the decentralization of the supply chain. Free same-day delivery is code in industrial real estate for “companies are extending their sup- ply chains.”Amazon has most notably set the bar with what we refer to as its hub-and-spoke model: a 2.5-million- square-foot hub facility, accompanied by one to three 100,000- to 250,000-sf warehouses within a 60-minute drive of its hubs. Instead of continuing to warehouse a high concentration of its inventory in gateway industrial mar- kets like the Inland Empire, we’re see- ing other credit tenants following suit by increasing their footprint in cities like Denver and, subsequently, inking first-time leases in the high-growth secondary and tertiary markets like Northern Colorado, Colorado Springs and Boise, Idaho.Walmart will deliver items from its store and/or warehouse to your doorstep the same day; Home Depot will deliver its inventory from its store and/or warehouse to your job site the following day. The Rocky Mountain region’s case for industrial Pat Blasdell Managing director, real estate team, Bow River Capital John Layton Vice president, real estate team, Bow River Capital Please see Blasdell, Page 32 The mountain states have experienced population growth every year for 75 consecutive years, most recently by 15.9% over the last decade. Meanwhile, the spread in population growth between mountain states and western coastal states has widened over the last decade.