Unlike many other segments of the economy, warehouse and distribution center (DC) development is not only withstanding the widespread economic impact of COVID-19, it’s thriving. In fact: It’s red hot. Companies can’t find space fast enough and developers can’t build DCs quickly enough to meet demand. “The market is thriving, and with it, record high transaction volume (new leases, user sales and renewals), record high rents, a vacancy of 4.7%, and 42 consecutive quarters of positive absorption,” reports James Breeze, senior director, global head of Industrial & Logistics Research for CBRE.
Robust demand for industrial product has kept developers busy. “At the end of the third quarter of 2020, more than 312 million square feet was under construction [nationwide] and 37% of this was already preleased—the highest rate of pre-leasing in over a year,” Breeze exclaims. Other noteworthy trends include climbing rents, annual absorption inching close to the 200-million-square-foot benchmark, and record-high deliveries, reports Mehta Randhawa, director of U.S. Industrial Research, Jones Lang LaSalle Inc. (JLL).
As stay-at-home orders lifted, construction activity resumed, and deliveries spiked. Consequently, JLL data indicates that delivery of industrial space hit a record high in the third quarter of 2020, with completions totaling 97.4 million square feet. When all totaled, JLL expects that figure to hit 107.0 million square feet for 2020. “We have seen a speed associated with innovation that was never known to us before COVID,” remarks Matt Powers, executive vice president, JLL. “Supply chain models are being transformed in days instead of months or years.”
Driving this robust development surge is widespread adoption of e-commerce, accentuated by COVID-19. “Most consumers are not only buying more product online; they are expecting it to be delivered in a timely manner,” says Breeze. Consequently, developers are seeing upwards of five years of e-commerce growth in one year—a trend, they say, that’s not going away, Further, companies are looking to carry higher inventory levels given that many incurred lost revenues by not having the inventory to meet demand. “Beyond carrying higher inventory levels to favor resiliency over efficiency in their supply chains, companies are also considering more diversified manufacturing locations,” says Carter Andrus, president of Central Region at real estate investment trust company Prologis. “In some cases, companies have become too efficient without having some buffer or just-in-case stock for events that happen.”
Andrus observes that these two trends have the potential to generate more than 500 million square feet of additional warehouse and DC space in the next two to three years. “This is overwhelming,” he says. “In terms of facility size, we see good momentum in all size categories, although activity has been best above 100,000 square feet with pronounced strength in the big box spectrum, with that being greater than 250,000 square feet.” Earlier in 2020, Prologis saw some softness in spaces below 100,000 square feet, but now market demand for this space is also improving. All of these factors continue to shift supply chain strategies to increase distribution centers throughout the country whether it’s a company shipping directly to the consumer, or the supplier to that company.
According to the seasonally adjusted date from the U.S. Department of Commerce, U.S. consumers spent an estimate $209.5 billion online in the third quarter of 2020. That’s a whopping increase of 36.7% from the same period in 2019 when e-commerce sales made up 11.2% of total sales. Two of the biggest players in the retail world are Amazon and Walmart. Last year, Amazon was said to have over 100 fulfilment centers alone. The company typically builds fulfillment centers to feed regional sort centers as well as DCs, also known as delivery stations. Its fulfillment centers are typically 1 million-square-feet or more.
Walmart, known for running one of the largest distribution operations in the world, has over 190 DCs with more than 143 million square feet, according to global supply chain, logistics and distribution consulting firm MWPVL International Inc. “Market drivers include population growth and competition shortening the last-mile with same- or next-day delivery,” states Powers.
Robert Van Geons, president and CEO Of Fayetteville Economic Development Corp., who promotes activity in his region of North Carolina, observes how onshoring of manufacturing, increased e-commerce and drastically altered consumer demand cycles have significantly increased the demand for warehouses and DC space. “While new product is under construction, it’s nearly impossible to find a large [250,000 square feet+] quality building available between Washington, D.C. and Savanah,” Van Geons reports. “If it has good ceiling height and is close to a major interstate, it is off the market.”
https://www.logisticsmgmt.com/article/record_breaking_demand_for_warehouse_and_dc_development/warehouse
