The industrial and warehouse real estate market has exploded over the last decade, seeing sudden growth in production, skyrocketing prices, and new design and location demands.
The main driving force behind this trend is the continued rise of e-commerce, which today makes up about 9% of all retail transactions in the United States. This has had a deep, sudden impact on supply chains, distribution, and logistics.
“While 9% doesn’t sound like much, it’s pretty substantial considering it is growing so quickly and driving new development,” says Mason Mularoni, a senior research analyst at real estate services firm JLL.
The data backs this up. According to a report from CBRE, a global real estate research and market insight firm, “For each incremental $1 billion growth in e-commerce sales, an additional 1.25 million square feet of distribution space is needed to support this growth. This suggests that of the 236 million square feet that was absorbed in 2017, approximately 30% of it was attributable to e-commerce.”
And another study, also from CBRE, reports that there is a strong correlation between the increase in e-commerce and warehouse size. “The average new warehouse in the U.S. increased by 108,665 square feet (143%) in size and 3.7 feet in height when comparing high development activity periods in 2012-2017 and 2002-2007.”
While much of this upward growth can be attributed to the rise of e-commerce, a number of other developments have also played a role, including increased automation in the supply chain, multimodal options, the uptick in demand for human-centric designs, and the rise of cold chain storage and logistics. Not only have these factors impacted industrial real estate growth, they have also changed how facilities are being designed, as well as where they are located.
Some of these changes involve the vertical expansion of warehouses, as well as building in urban areas. “The race for urban U.S. warehouse space is going vertical,” writes Jennifer Smith of the Wall Street Journal Logistics Report. “Developers hoping to capitalize on the push for faster e-commerce delivery are building multi-story warehouses with features aimed at maximizing capacity in tight urban footprints.”
Being located in central, densely populated areas offers several key advantages, including last-mile distribution benefits and closer proximity to labor. “Still,” Smith points out, “such projects cost more, are typically done on spec, and could leave developers exposed if tenant needs change.”
As e-commerce and technological innovations continue to evolve, it’s expected that demand for state-of-the-art facilities in urban areas will continue to climb.
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