Rise of e-commerce logistics and outsourced warehousing

Globally, the commercial real estate industry is undergoing massive structural change through a concept known as space-as-a-service. Space-as-a-service is a paradigm shift in how the commercial real estate industry provides products and services to tenants – changing the role of commercial landlords from rent collectors to service providers.

This business model is based on the view that the traditional role of landlord is being disrupted, and that the business of real estate requires customer-centric solutions and value-adding services. In South Africa, the oversupplied office sector is increasingly growing a range of services to attract tenants to their spaces. Last-mile logistics park owner and operator, Inospace is one of the only non-office property owners to introduce the space-as-a-service model to the growing industrial and logistics sector.

The space-as-a-service in not new. Companies like Prologis, the world’s largest logistics real estate company, with a market value of over R2trn has grown its Essentials space-as-a-service platform into a multi-billion Rand income generator. Founded in 1983, Prologis owns over 4,703 buildings in 19 countries across the Americas, Europe and Asia. The company provides warehouse real estate solutions and services to over 5,000 tenants, including Amazon, BMW, FedEx, Pepsico, UPS and Walmart.

Prologis developed its Essentials platform by offering “warehouse-as-a-service” to global businesses. They have created an integrated solution by helping small and medium-sized businesses to move in, set up or solve a problem in a warehouse facility.

Following the precedent set by the global warehouse leader, Inospace launched the Inocircle platform in 2022.

Inospace not only grew its physical last-mile logistics real estate platform over the past two years, but through Inocircle, it focused on solving tangible pain points for smaller businesses, enabling them to streamline their logistics operations. The company founded in 2017, has grown its property portfolio to R3bn with 52 properties and more than 1,500 tenants who distribute goods directly to consumers and other businesses.

Inospace recently launched its first fulfilment and outsourced warehousing facility in Paarden Eiland, Cape Town. A second facility will be opened in early-2024 in Midrand Johannesburg

These facilities will help medium-sized and small e-commerce companies with their fulfilment, warehousing and distribution needs. A specialised warehousing and distribution offering supports the concept of property providers offering value-added services to their tenants. For Inospace, this added service creates a frictionless end-to-end logistics environment that supports emerging and fast-growing businesses.

The team behind Inospace Services, the company’s management arm, travelled to the USA to learn from the world’s leading logistics companies about which service tenants most require.

E-commerce companies, which have driven demand for the industrial and logistics sector, often face fluctuating inventory sizes and seasonal demand challenges. An all-in-one logistics and outsourced warehousing solution allows these companies to adapt and scale their operations based on constant changing supply dynamics. When an e-commerce business receives, stores and sends goods to customers, it can either rent a fixed warehouse space and provide its picking, packing and shipping services or outsource this to a third-party logistics provider.

Many small and growing businesses turn to empty garages, their homes and rental storage spaces. These spaces serve as functional warehouse facilities if inventory can be delivered, picked up and stored safely and efficiently. When this space becomes inefficient or impractical, smaller e-commerce businesses find renting their own warehouse the most cost-efficient option. As their businesses grow or stock levels rapidly fluctuate, they require scalable space and outsourced staff to assist with order fulfilment. For most smaller e-commerce businesses, a fully outsourced third party logistics option is costly.

Several global real estate providers are now offering a hybrid warehouse service that can go the extra mile by providing fixed spaces with outsourced warehousing and fulfilment under one roof. This space-as-a-service offering is where the highest demand is, and companies such as Atlanta-based Saltbox are rapidly growing nationwide.

Inospace’s logistics fulfilment service assists tenants in managing product orders as directed by their customers. For example, if a customer [end-consumer or a retail outlet] requests 100 units of Inospace’s tenant product – they can transmit the order details online to the Inospace technology platform for order fulfilment. Once the order information has been received, the Inospace staff will pick, pack and arrange delivery of the order. Most critically, the platform automatically selects the lowest pre-negotiated courier prices and terms based on the tenant’s requirements.

Inospace may cannibalise some of its own lettable space as tenants realise they can reduce their traditional rented warehouse space in favour of outsourced warehousing. Tapping into this space enables smaller businesses to level the playing field and compete more effectively with larger companies.

Worldwide, the space-as-a-service will continue to shape the commercial real estate industry as space is no longer viewed as the traditional bricks-and-mortar-type service.