With consumers increasingly expecting to tap their smartphones and find a product on their doorstep within hours, e-commerce is creating an ever more intense demand for industrial real estate near population centers that can used for last-mile logistics, according to panelists at ULI’s 2017 Fall Meeting in Los Angeles.

Panel moderator Benjamin Conwell, who heads Cushman & Wakefield’s e-commerce and electronic fulfillment specialty practice group for the Americas, said that with e-commerce growing at a 15 percent annual pace and reaching $400 billion in revenue the United States alone, it now accounts for one quarter of total U.S. industrial leasing. For larger buildings of 700,000 square feet (65,000 sq m) and up, the number is closer to 30 percent, he said.

As Amazon and other e-commerce players strive to get merchandise to customers faster and more efficiently, the real estate infrastructure to facilitate those deliveries has rapidly grown and evolved, panelists said. Massive fulfillment centers on the distant outskirts of major population centers increasingly have been augmented by smaller, closer-in facilities where inventory turns over rapidly as delivery workers in Toyota Priuses, small vans, and motorcycles grab packages and rush them to their final destinations.

That demand has created an increasingly intense competition for suitable buildings, according to Richard Kolpa, a Seattle-based vice president for industrial real estate giant Prologis.

“Five years ago [for] our last-mile submarkets, there were virtually no institutions interested in this product,” Kolpa said. “We started in this three years ago; now we have close to half a dozen competitors who are right there with us on every deal.”

No one on the panel expects the market to cool down anytime soon. “The way it’s going, it’s hard to imagine that anybody is going to be weaned off getting their products delivered in an hour, a day, or two days,” Kolpa said. “I’m 52, and if I don’t get this blue shirt for a month, I don’t care. But living in Seattle and looking at millennials who’ve grown up with tech, this is how they shop. They’re the largest population in the workforce today, and they’re going to be entering their peak spending years. I think there will be just more and more demand for it.”

It is not just Amazon and Wal-Mart that are clamoring for last-mile logistics locations, said Patrick Ryan, executive vice president at Cabot Properties, a Boston-based private equity firm.

“We have a tenant in a building in Chicago, next to a FedEx ground facility—a young guy, who’s leasing 50,000 square feet [4,600 sq m] for his mattress business,” Ryan said. “He has a website, no retail footprint at all. He manufactures them there, stuffs them in a box, and there’s a FedEx truck parked at his dock. He’s got customers all over the world. That sort of use is going to continue to drive demand.”

Timur Tecimer, chief executive officer of Los Angeles–based commercial real estate firm Overton Moore Properties, said third-party logistics firms, or 3PLs, increasingly are looking for space as they work with legacy clothing manufacturers to distribute their products and manage returns. About 30 percent of goods ordered online end up being returned, compared with 8 or 9 percent of products purchased in conventional physical retail stores, he said.

When it comes to finding sites for last-mile logistics, proximity to dense population centers is the top priority, panelists said. That—and the need to get buildings into play quickly to meet demand—means that developers most often try to renovate and repurpose older industrial buildings rather than spend years obtaining entitlements and building structures designed for e-commerce operations.

“You can accept some physical imperfections,” Ryan said. But a property still has to have certain base characteristics to be suitable for last-mile logistics use, such as sufficient space for trucks to navigate and enough parking for the large numbers of employees that some operations require. “One thing I don’t want to compromise about is a high throughput,” he said.

But with suitable buildings increasingly at a premium, Prologis is building a three-story, 590,000-square-foot (55,000 sq m) fulfillment center in Seattle, the first multistory warehouse in the United States. The facility, which is 11 to 12 months from completion, will be able to accommodate both e-commerce and smaller light-industrial tenants, such as aviation technology firms, Kolpa said.

Kolpa predicted that multistory facilities, which already are found in other countries, will become commonplace in the United States over the next decade. “Investors are going to have an appetite to purchase these assets,” he said.

Conwell said that repurposing dying shopping malls as distribution centers might sound like a good solution, but in practice doing such conversions is dauntingly difficult. One problem is that municipalities are reluctant to change zoning for retail sites, in part because they have grown accustomed to collecting more lucrative taxes from that use.