By Loretta Chao 

SOUTH BRUNSWICK, N.J.--To understand the extent to which e-commerce is transforming U.S. retail, look no further than the warehouses up and down the New Jersey Turnpike, where packing boxes and moving pallets stacked high with customer orders has become a booming business.

New Jersey has seen a flurry of industrial leasing activity as companies including Amazon.com Inc. have built new fulfillment centers and converted old commercial space into warehouses. The distribution hubs are a waypoint for packaging small parcels to be shipped to consumers from Pennsylvania to Massachusetts. Areas along New Jersey's main highway artery are prime warehouse real estate because the state is close to a major port, where companies can receive cargo from overseas, and New York City, a huge market for online shopping. Vacancy rates are low, and the state's warehouse market is among the most expensive in the country.

"Space is hard to come by as more and more demand is pouring into the region," said Michael McGuinness, chief executive of the New Jersey chapter of commercial real estate development association Naiop. "Everyone wants to be in this New Jersey corridor."

To commemorate the state's growing role in commerce, CBRE and logistics services firm CORE Group LLC hosted New Jersey's second annual LogistXGames event on Friday in South Brunswick, home to a large cluster of warehouses. Teams from companies such as Lifetime Brands Inc., maker of KitchenAid and Mikasa-branded household products, and mattress retailer Sleepy's, raced to wrap wine bottles in bubble packaging, assemble boxes and maneuver pallets around an obstacle course and other warehouse-themed races. At stake: the Golden Pallet, and bragging rights until next year's games.

Jeweler Tiffany & Co., which has a warehouse in northern New Jersey, unseated the defending champion, book publisher Simon & Schuster.

Participants said the competition was an acknowledgement of a less visible, but increasingly vital part of their companies' operations.

"Sales goes out and gets the order, but we're the final step," said John McCranor, vice president of warehouse operations at Lifetime Brands, which has a facility in Robbinsville, N.J. "We have to get the merchandise out to the customers ... so I'd say it's the most important [part of operations]. If we get orders and we don't supply it and satisfy our customers, we're going to fail as a company."

The concept for the LogistXGames came out of Louisville, Ky., where a major distribution hub has formed around package-sorting facilities run by United Parcel Service Inc. The event comes to New Jersey at a time when vacancy rates for industrial real estate in the area are so low that real estate developers are starting to convert other types of commercial buildings into warehouse space, thanks to the growth of online shopping. The state's vacancy rate for industrial real estate reached 7% in the third quarter, its lowest point since the beginning of the recession, according to real estate firm Jones Lang LaSalle.

"We are in the center of the most densely populated and the most affluent consumer market in North America," said Anne Strauss-Weider, a New Jersey-based logistics and economic strategy consultant. "The New Jersey turnpike acts as a supply chain spine, it serves the entire northeast and acts as a distribution platform."

E-commerce warehouses are different from traditional wholesale distribution centers principally because more workers are needed to pick and pack small items for a high volume of consumer orders that need to be fulfilled quickly. This requires more parking spaces to accommodate an influx of employees, different machinery, and warehouse management software.

"E-commerce is a lot more labor intensive because you're picking onesies and twosies to go to the end consumer," said Allison Clancy, president of CORE Group, adding that more employees also require structural changes. An e-commerce fulfillment center often requires five times as many parking spaces than other types of warehouses, she said.

Write to Loretta Chao at loretta.chao@wsj.com

 

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(END) Dow Jones Newswires

September 30, 2015 10:06 ET (14:06 GMT)

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