As e-commerce faces increasingly complex last-mile delivery challenges, traditional logistics real estate giants are reevaluating their strategic positioning. A recent report from JLL reveals that e-commerce demand for distribution centers (DCs) is no longer confined to traditional logistics hubs, with an accelerating trend toward "secondary markets" in the U.S. Midwest. This shift represents more than just geographic relocation—it signals profound transformations in labor costs, warehouse efficiency, and overall supply chain strategy.
The Midwest Emerges as E-Commerce's New Battleground
For years, regions like Central Pennsylvania, Dallas-Fort Worth, and the Inland Empire have dominated as preferred locations for distribution centers, thanks to their strategic locations and robust logistics infrastructure. However, the explosive growth of e-commerce has challenged these traditional strongholds. JLL's report highlights how Midwestern cities including Indianapolis, Columbus, Cincinnati, and St. Louis have seen significant growth in e-commerce leasing activity over the past two years, now ranking among the nation's top ten logistics hotspots. Indianapolis stands out particularly, with e-commerce accounting for 61.2% of its "big-box" warehouse leasing activity.
This migration stems largely from the nationwide labor shortage affecting distribution centers. As labor costs in traditional logistics hubs continue to rise, e-commerce companies are seeking more cost-effective alternatives. The Midwest offers both lower labor costs and increasingly sophisticated logistics infrastructure, making it an attractive destination. Moreover, its central geographic position enables more efficient service to America's vast heartland markets.
Labor Costs: The Achilles' Heel of E-Commerce Logistics
JLL experts emphasize that beyond geographic advantages, the Midwest's appeal lies primarily in e-commerce's sensitivity to last-mile delivery labor costs. With the U.S. "big-box" warehouse leasing market thriving and unemployment at record lows, warehouse worker wages are projected to outpace growth in many other employment sectors—a trend that will inevitably increase operational costs for e-commerce businesses.
"Given that more goods need to be stored in more locations, we anticipate significant transformation in the logistics industry," said Dr. Walter Kemmsies, JLL Managing Director, Economist, and Chief Strategist.
Matt Powers, JLL Vice President of Retail E-Commerce, noted that logistics management salaries are also experiencing ripple effects. "As frontline worker wages rise, management expects higher compensation too," he explained.
Omnichannel Integration: The New Retail Reality
At the recent Retail Industry Leaders Association (RILA) annual conference, participants widely expressed concerns about competition from pure-play e-commerce retailers. "For the first time, we're seeing retailers more willing to share business model information and collaborate extensively in coming years," Powers observed.
This cooperation reflects retail's urgent need for omnichannel integration. With e-commerce booming, traditional retailers face immense pressure from online channels. In response, many are actively embracing omnichannel strategies that merge digital and physical shopping experiences to enhance customer satisfaction and operational efficiency.
Implementing omnichannel requires more agile, high-performance logistics networks to meet consumer expectations for fast, convenient delivery—further accelerating the Midwest's emergence as an alternative logistics hub.
Reshaping Logistics Real Estate: Opportunities and Challenges
Rising last-mile delivery costs and omnichannel strategies are fundamentally transforming logistics real estate. While the Midwest offers developers and investors new opportunities, challenges remain:
- Midwest logistics infrastructure requires significant investment to meet growing e-commerce demands
- The region's decentralized labor market needs workforce development to improve logistics efficiency
- Variations in policy and business environments require coordination to ensure fair, transparent competition
To succeed in this evolving landscape, logistics real estate professionals must develop nuanced strategies that account for Midwestern market conditions while leveraging regional strengths.
Strategic Adjustments for Complex Last-Mile Delivery
E-commerce companies and retailers must reconsider logistics strategies to address mounting last-mile complexities. Key adjustments include:
- Optimizing inventory placement: Distributing stock closer to consumers reduces delivery distance and time
- Implementing automation: Automated warehousing and sorting systems boost efficiency while lowering labor costs
- Collaborating with 3PL providers: Partnering with third-party logistics experts optimizes networks and reduces expenses
- Investing in data analytics: Advanced analytics tools improve demand forecasting and logistics optimization
- Prioritizing sustainable logistics: Eco-friendly practices reduce carbon emissions while enhancing brand reputation
Through these strategic shifts, businesses can better navigate last-mile complexities while improving customer experiences and profitability.
The Future of Logistics Real Estate
Escalating last-mile costs and omnichannel adoption are reshaping logistics real estate. The Midwest's ascent presents fresh opportunities for developers and investors, though not without obstacles. Only those crafting detailed strategies—while embracing innovation and regional market realities—will thrive in this new environment. The road ahead for logistics real estate promises both transformation and opportunity.
Ultimately, e-commerce players and retailers must recognize logistics as more than mere product transportation—it's becoming a critical differentiator for customer satisfaction and financial performance. By refining logistics strategies, adopting innovative technologies, and strengthening partnerships, businesses can overcome last-mile hurdles and secure competitive advantage.