Lucas Jackson | Reuters
The Covid pandemic has accelerated e-commerce sales globally, with digital sales fueling a greater portion of retail and grocery businesses. This has sparked a race for warehouse space and led companies to seek out creative commercial real estate alternatives as they strive to fulfill orders online and avoid delivery delays.
Demand for large-area industrial facilities – warehouses or distribution centers of 200,000 square feet or more – hit a record high in North America last year, according to commercial real estate services company CBRE. It was the best performer among all industrial real estate. Transactions for these spaces totaled 349.3 million square feet in 2020 in the 22 major markets, a jump of almost 25% from 2019, according to CBRE.
“We are really only seeing the tip of the iceberg when it comes to e-commerce demand and growth,” said Mindy Lissner, executive vice president of CBRE. “Once you get it started you understand how easy it is to order things online. ”
“The pandemic has had a huge impact on the growth in demand for warehousing and delivery,” Lissner added. “But it was already increasing anyway. … And the trend will continue. ”
It’s time to get creative
How about an old golf course? Amazon recently found an 18 hole plugged in the town of Clay, New York, to build a $ 350 million distribution center. He also plots a distribution center over part of an old golf course in Alcoa, Tennessee.
The e-commerce giant has also taken old and missing malls, of which there are many in the United States, and turned them into warehouse spaces. Like older golf courses, older shopping malls are often located in communities full of paying customers, making the land suitable for distribution facilities looking to be close to homes. But developers still face hurdles like rezoning.
Vacant office buildings are becoming an attractive target to turn into a warehouse, Lissner said. She said many have convenient locations and sprawling campuses, right next to a freeway. More office space could end up in the market, especially if companies expand their remote working policies after the pandemic and need less space for employee cubicles.
Experts also point to a pivot away from vast warehouses in the middle of nowhere to spaces closer to customers. In some cities, like New York, this has prompted companies to expand rather than withdraw. Some have moved into multi-story buildings that have been converted to vertical warehouses in outer boroughs and neighborhoods like Long Island City.
“Our clients prefer more expensive real estate,” said Chris Caton, Managing Director of Global Strategy and Analytics at Prologis. “They don’t go out to really remote places anymore, like Columbus, Indianapolis or Memphis. Instead, much of this demand, and in particular the growth in rents in our business over the past decade, has been concentrated in 24 hours. cities. ”
Prologis, a real estate investment trust that owns warehouses and is Amazon’s largest owner, estimates that for every billion dollars in sales, e-commerce companies need 1.2 million square feet of space. of distribution.
But the demand is apparently everywhere you look.
Gap announced in February an investment of $ 140 million to build a distribution center in Longview, Texas, as part of its efforts to double its online business over the next two years. When complete, Gap said the 850,000 square foot facility would be able to process 1 million packages per day. Initially, it will be used for the burgeoning e-commerce business of the Old Navy and then spread to other parts of the Gap business.
Williams-Sonoma recently told analysts it plans to increase its manufacturing and distribution capacity by 20 to 30 percent over the next year, including adding approximately 2 million square feet to the distribution center network. of the company.
The Home Depot earlier this year opened a 1.5 million square foot distribution center to process online and in-store orders in Dallas.
Shares have risen about 15% in the past 12 months for Americold, the only publicly traded temperature-controlled warehouse owner in the United States, in part due to Covid vaccine storage requirements.
Unlike commercial real estate, where rents have come under pressure because demand is not what it used to be, industrial real estate prices continue to climb.
Craig Meyer, president of JLL’s industrial division for the Americas, said “aggressive leasing” among retailers has resulted in lower vacancy rates and higher rents.
“We’re actually concerned about the availability of the product from the middle of the year,” he said.
Industrial rents, on a national average, hit $ 6.47 per square foot in February, up 5.1% year-over-year, according to data from real estate technology company CommercialEdge. New leases signed for the month carried a 14.7% premium, or an average of $ 7.42 per square foot, the group said.
“On the industrial side, the prices are higher than I’ve ever seen in my 30 years,” Lissner said. “I mean, a lot, a lot more than any prediction. ”