The exponential increase in online sales has created diverse and latent opportunities for companies involved in the supply chain, from suppliers to packaging and/or distribution and delivery. As context, if we compare the second quarter of 2020 with that of 2019, we can observe that online sales of the six main retailers listed on the Mexican Stock Exchange grew by 140%, while in-store sales declined by 45%. The case of Sanborns stands out, as its online operations went from contributing 8% to representing 60% of its total sales in the year. During the same period, the same happened with Liverpool and Palacio de Hierro, whose shares of online sales went from 12% to 78% and from 12% to 60%, respectively.

According to a study conducted this year by the Mexican Association of Online Stores (AMVO), 20% of the surveyed businesses have experienced growth rates exceeding 300% in their online sales. For the next year, it is expected that the digital channel will account for more than one-third of their total sales. "For those involved in the supply chain of e-commerce, efficiency is measured by how quickly they can deliver products to their end consumers." Generally, in Mexico, deliveries are not made until 24 hours after the purchase, while in the United States and Canada, they have been reduced to the same day. Again, this depends on the conditions of each market. 

The objective will be to reduce these times and distances to streamline their operations. The challenge for those making these deliveries is not insignificant; the cost of delivering the product to the end consumer (last mile) represents 53% of the total supply chain cost. On the other hand, one of the reasons why customers abandon the online purchasing process is the surcharge for early deliveries.

Another important challenge is the cost of fuel, which represents approximately 5% of the operating costs, including warehouse rent. Additionally, this is a dollarized expense that is beyond the control of the retailer or logistics company. In countries or regions like the United States, Canada, or Europe, there is talk of the "crowd-tasking model," in which a group of individuals, previously verified and unrelated to a logistics company, make their vehicles available for last-mile package delivery. This is a collaborative solution that could help reduce costs and improve process efficiency. In addition to this, we must consider the factor of reverse logistics or the logistical operation of product returns. During the third quarter of the year, returns accounted for 20% of total online sales in the United States, while in Mexico, 21% of buyers in digital channels reported having made a return, according to a survey by AMVO. However, more than two-thirds of online buyers want to be able to return products through the postal system and exchange them for something else. In summary, these four components (shipping process, waiting period, operating costs, fuel) are key to logistics distribution. 

Real-time monitoring of their efficiency adds value to the supply chain and provides a competitive advantage. Various players have approached SiiLA Mexico to request information related to assets whose characteristics are oriented towards serving the last mile. The truth is that this concept can vary depending on the market, sales volume, geography, location, connectivity, among others. In Mexico City, the total inventory of industrial properties classified as A and B, considering the 9 submarkets monitored by SiiLA, is 442 properties, and 24% of these are within a 15-kilometer radius from the city center. If we consider only properties with a Gross Leasable Area (GLA) of less than 20,000 square meters, the sample is reduced to 104 assets, mostly classified as B. However, out of the total of these properties, only 13% are currently available.

It is worth noting that the two major players in e-commerce in Mexico have continued their model of expanding packaging and distribution centers. For example, Mercado Libre has grown by 620% in one year (3Q19 vs 3Q20), with over 132,000 square meters of Gross Leasable Area (GLA). Amazon, on the other hand, has over 185,000 square meters of GLA and is the largest tenant in the e-commerce industry in Mexico. Additionally, these types of companies rent distribution centers where they receive, package, and organize the shipment of products to other smaller distributors who are responsible for last-mile delivery. These companies will need to expand their footprint to make use of assets located near their end consumers. As seen in the previous graph, the availability of spaces in highly urbanized cities is very low. 

This is due to limitations in urban planning, zoning, and other geographical conditions. In this scenario, opportunities for industrial properties with last-mile characteristics are reduced, and as a result, these spaces tend to have high market prices compared to properties intended for the manufacturing of capital goods. There is much discussion about other assets that could function as last-mile distribution centers in Mexico, such as shopping centers or their parking lots. From a real estate perspective, these types of conversions have many legal, urban, and business implications that need to be addressed. Currently, it is very complex to change the land use that has been previously granted by the authorities, as there are well-established zoning regulations in urban plans, especially in larger cities such as Mexico City, Monterrey, and Guadalajara.

On the other hand, this type of logistics activity generally cannot justify the rental costs previously calculated for return on investment. In other words, the business model would have to be modified, adjusting the perceived risk. This would have an impact on the asset valuation and, consequently, on the expected returns for investors. In the case of Monterrey, within a 15-kilometer radius of the city center, we observe a multiplication of warehouses, reaching a total of 410, ranging from 540 to 43,000 square meters of Gross Leasable Area (GLA). 90% of these warehouses are classified as type B, 8% as type A, and the rest as type C. Of these, only 7% are currently available. Tenants from the "transportation and logistics" industry occupy 50% of the spaces. Currently, there are 94 companies providing distribution and logistics services in this market, either as Third-Party Logistics (3PL) providers or under their own brands, occupying a total of 746,000 square meters of Gross Leasable Area (GLA). 88% of the occupied space falls within the range of 1,500 to 15,000 square meters of GLA, indicating the market's interest in assets of these sizes.

It is important to highlight that the occupancy of transportation and logistics tenants has grown by 16% over the last four quarters. The pace of space absorption by these types of companies has been happening even before the arrival of Mercado Libre and Amazon to Monterrey, who established their first distribution centers during the third quarter of 2019, occupying a total of 5,112 and 21,982 square meters, respectively. Guadalajara has a total of 205 warehouses within a 15-kilometer radius of the city center, of which only 6.3% are available, representing a total of 41,859 square meters. During the third quarter of the year, Amazon occupied 18,741 square meters in Warehouse 4 of the Technological Industrial Park in the "El Salto" submarket, being the first of the two major players to establish a presence in this central market of the country. Today, we see a logistics industry that could accelerate real estate development due to the arrival and expansion of players such as IKEA, CEVA Logistics, Mercado Libre, and Amazon. 

However, we also see many challenges that need to be addressed immediately in order to reduce costs and provide a shopping experience that maintains customer interest in online shopping, even after the existence of a vaccine or treatment for COVID-19. Is Mexico ready to address the "last mile"? From the perspective of SiiLA Mexico, there is a voracious demand for assets that can facilitate the last mile, in addition to exponential growth in online sales by both traditional sellers and those dedicated solely to e-commerce. However, the main cities in Mexico present significant challenges to meet this demand. It will be necessary to take measures to facilitate this process: 

 - In the face of a shortage of immediate inventory for institutional tenants, asset conversion with the minimum physical and proximity characteristics is necessary.

 - Authorities need to understand the need for conversions in zones with potential but with different land use than industrial logistics. 

- Consider reverse logistics as an additional service to the end customer. Make this process simple and easy to perform. Eliminate the steps required for proper package and refund handling. 

- Innovation as part of the solution in the final delivery to the consumer; strategies such as the "crowd-tasking model" to contribute to the distribution process and reduce costs. 

- Have updated and quality data that meets the information requirements of tenants and developers who wish to rent or invest in assets with these characteristics.