Dive Brief:
- The U.S. will need to add 330 million square feet of warehouse space dedicated to online fulfillment by 2025 in order to keep pace with the expected uptick in e-commerce sales over the same time period, according to a recent report from CBRE.
- The report expects e-commerce sales in the U.S. will increase to 26% of retail sales by 2025. Globally, there will need to be an increase of 1.5 billion square feet to keep up with a $1.5 trillion uptick in e-commerce sales by 2025.
- Vacancy rates for industrial real estate space have been low across the U.S. for months. "[A] significant amount of new construction will be needed in the next few years just to keep pace with robust demand," John Morris, executive managing director and leader of CBRE's Americas Industrial and Logistics and Retail businesses, said in a statement.
Dive Insight:
Retailers have long relied on distribution networks to help replenish their stores. E-commerce natives rely on highly automated warehouses to fulfill consumer orders, and many traditional retailers are rethinking this infrastructure as they build omnichannel enterprises.
E-commerce-specific fulfillment centers will have features that are different from traditional warehouse space, Morris said in a market update last week. This includes more parking, 30- to 40-foot clear height inside the warehouse, maximizing dock doors, increased power access and ventilation, he said.
But if companies are looking to go out and build new warehouse space right now, it won't be cheap.
"We've seen 25% cost increases since December for construction," Rebecca Perlmutter Finkel, an executive vice president at CBRE, said during the same market update.
And even companies looking to rent new space could experience some sticker shock. The first year rental rates from Jan. 1 to May 31, 2021 are up 9.7% compared to the same period the year prior for rental terms of 12-months or longer, according to CBRE.
But the high rates haven't hampered interest, according to the warehousing and real estate firms working with e-commerce retailers.
"E-commerce demand remains elevated, representing 25% of new lease signings in the first quarter," Prologis CFO Tom Olinger said on the company's earnings call in April. "The balance of leasing is diverse, with outsized growth among companies that provide food and consumer products as well as renewed momentum in the construction segment as housing expands."
