The COVID Affect?
Warehouse occupancy rates are on the rise and it is harder and harder to find open space for those businesses who are looking for places to store their inventory. While that is good for building owners it is hard on many others such as business owners selling products, consumers and those in the transportation business.
What is happening? A large part of the story is directly a result of COVID-19 and the impact it has had on the way consumers are buying products. The rise of ecommerce has been accelerated by social distancing and restrictions that were put into place by the government. How? Stores, shopping centers, malls and other traditional methods of shopping were restricted or outright closed. With the economic policies put in place to help workers it has also been harder to get low wage earners to accept jobs when they can make more on unemployment. Others, many found themselves working from home, so shopping on-line became more practical than running to the store.
When you look at the overarching affects of COVID-19 from closures, employment changes and consumer mindset, ecommerce has gone from being a small part of our shopping experience to the most common method, leap frogging traditional in person shopping at brick and mortar locations.
Current Occupancy Rates
Depending on where you are in the USA, there might be no commercial warehouse vacancy at the moment. National average ranges somewhere in the 4-6% range depending on what survey data you are looking at. For example, this Wall Street Journal article says that the rate is 4.1% as it quotes Cushman & Wakefield as their source. Statista on the other hand, has the current USA occupancy rate 2021 3rd Quarter vacancy rate at 6%, meaning occupancy of commercial warehouses are 94% full. No matter what report you ultimately believe, the data across the board shows most space is full and that leaves anyone looking for space having to either pay top dollar or look for out of the box solutions.
The Role of Ecommerce in the Changing Logistics Landscape
The era of large shopping malls is all but over. Now is not a great time to look to invest in strip malls either. Why? The consumer has undergone a major shift in the way the purchase. As already discussed above, COVID-19 has forced many to reconsider how they shop and there’s simply no putting the toothpaste back in the tube. For convenience and safety reasons, many shoppers are now making their purchases online. Mastin and Cain recently ran a pole on LinkedIn asking what percentage of gifts our followers purchased via ecommerce and over 50% of the respondents said they bought virtually all of their presents this way and a quarter more said they purchased at least 75% of their gifts online.
The shift to ecommerce as the main source of shopping has a huge impact on warehousing space. CBRE predicts that 330M additional square footage of warehouse space is needed by 2025 in the USA alone, to keep up. That represents over 25% of the overall commercial demand for real estate per their article. Other sources, like CNBC have estimated even more space is needed, as much as one Billion square feet. Ultimately time will tell but certainly all signs point to ecommerce dominating the landscape and affecting the commercial real estate market with higher demand for space.
Other Factors Driving Shortage of Warehouse Space
CBRE wrote an article “Rising Transportation Costs Help Fuel Record Warehouse Leasing Pace” that talks in depth about how transportation is contributing to the warehousing space shortage. From labor shortages, higher fuel costs and other related factors, some businesses are choosing to store more products to help offset the rising cost of transportation.
Another factor in rising warehouse space is competition for space from a booming new Cannabis industry. According to Pensions & Investments, over 63% of the marijuana grown for the cannabis industry in the USA is done inside warehouse space. As the cannabis industry continues to grow, it would make sense to assume that the demand for overall commercial warehouse square footage will as well.
Warehouse Space Demand Isn’t Going Away
The bottom-line here is straightforward and you do not have to a real estate expert to figure out that warehouse space demand is not going to vanish any time soon. Expect to see more big box buildings going up all across the country with now hiring signs for warehouse staff and commercial delivery drivers.
Your local mall might close or repurpose, but you’ll still be able to shop until your heart is content on any computer, tablet or mobile phone for the foreseeable future. Of course if you need any help finding and leasing space, we at Mastin and Cain would love to help.
