When COVID-19 prompted cities and states to lockdown and shutter businesses in March, the long-term impacts on the warehousing industry were largely unknown at the time. Dealing with a downward trend in inventory-to-sales ratios that started in the early-1990s, the U.S. warehousing sector probably couldn’t predict what would happen next.
As the economy restarted, manufacturers, wholesalers, and retailers all started looking for ways to bring product closer to their customers. This drove a spike in demand for warehousing space that hasn’t let up yet. Credit the increase in e-commerce sales-driven both by shutdowns of physical stores and the idea that shopping from home was safer—with also boosting demand for warehousing space.
Combined, these forces are making warehouse space the “hot commodity” of the nation’s real estate market in 2020.
By the Numbers
CBRE Research says industrial real-estate activity (i.e., lease renewals and new leases), increased 43% from April 15 to May 14 from the previous 30-day period, recovering more quickly than expected from the economic shocks of the pandemic. In the highest demand are warehouses of 100,000+ square feet.
Total warehouse transactions for the year are 2.8% higher than at the same time in 2019, even though activity fell 29% between March 15 and April 14 as lockdowns aimed at halting the spread of the coronavirus extended across the U.S., WSJ reports.
“Retailers and food and consumer goods suppliers ramped up their e-commerce operations during that period after a surge of orders from housebound shoppers during quarantine,” WSJ continues. “Companies are also securing new space to modernize their distribution operations, including locations near big population centers, for what they expect to be continued strong demand for services such as online grocery delivery.”
5 More Warehousing Trends to Watch
- According to CBRE, even a 5% increase in business inventories (i.e., a measure of the total value of goods held by manufacturers, wholesalers, and retailers) creates demand for an additional 400 million to 500 million square feet of warehouse space. Markets with convenient access to seaports may offer very limited space options.
- Markets like Chicago and Dallas/Ft. Worth are particularly well-positioned because of their central locations. “Warehouse projects already under construction in these markets can provide space to accommodate both increased inventories and expanded e-commerce supply chains for goods stored stateside,” CBRE points out.
- The COVID-19 crisis has underscored the fragility of just-in-time (JIT) production networks, which historically have involved very intricate global supply chains in which goods often go back and forth across international borders many times using many different transportation modes. “These JIT systems are now susceptible to closed manufacturing facilities, ports, and borders due to the COVID-19 crisis,” CBRE adds.
- The Institute for Supply Management (ISM) found that nearly 75% of business respondents have experienced supply chain disruptions and more than 80% believe they will in the future. As a result, many businesses are planning major restructuring of their supply chain processes.
- “The rising use of e-commerce is expected to create additional warehouse demand as consumers continue social distancing even after states and cities reopen their economies,” CBRE Research “Established e-commerce hubs at major transportation centers should see strong fundamentals as many occupiers recalibrate their supply chains and build automation and efficiencies into their distribution networks.”
Retailers that were already trying to close last-mile delivery gaps by moving closer to their customers pre-COVID are now in an all-out race to secure that warehouse space as quickly as possible. This trend will likely continue as companies come up with more creative, distribution-centric ways to get their products to market as quickly as possible.