The Warehouse Boom
The Industrial Warehouse sector has become one of the most popular types in real estate today. Over the last 5 years, the industrial real estate sector - warehouses, distribution centers, flex spaces and other industrial buildings with storage facilities - has experienced health growth while other commercial real estate property types have struggled to sustain demand.
Our country’s logistics commerce is quickly becoming a strong force in its national economy and is leading enormous demand for industrial warehouse real estate. The major supply chain drivers - consumer spending (in-store and online), trade, business inventories, and industrial production - were all at a record high pre-COVID.
Since 2012, the year-over-year rent growth has been positive and the availability rate has continued to decline. From 2014 to 2018, the industrial real estate market has experienced a net absorption of nearly 1.4 billion square feet. United States warehouse inventory has increased by about 75% in the past three decades. Nationwide, industrial property now totals 14.0 billion square feet across approximately 258,000 properties.
Over 80% of the warehouse properties are under 400,000 SF. The average square footage of a warehouse building is approximately 185,000. More than 30% of the warehouse buildings in the United States are over 50 years old The average age of all industrial properties is 34.
Retail vs. Industrial
The lines of the retail and industrial real estate sectors have been blurred as of late. In the past, the retail sector has had the longest lease terms of all property types, offering investors steady income. The industrial sector’s average lease length has climbed by almost 505% in the past 5 years.
With more inventory now increasingly stored in warehouses as opposed to the store, the sector’s future occupancy and cash-flow outlook has improved. Online retail sales have changed consumer expectations regarding product delivery and revolutionized how companies move inventory from the business to the consumer. This makes minimizing cost and optimizing speed more important than ever.
The “LAST MILE”, or locally sourced-logistics, has driven much of the recent warehouse development and leasing activity in and around the largest MSA’s. Local regional warehouses and distribution centers are now more prevalent with same-day and two-day delivery models as the new norms.
A big growth area that is just beginning to take shape is in e-grocery and e-pharmaceuticals. A rising share of these are occurring via the web. Online grocery store sales, now less than 5% of total grocery sales, are predicted to capture 20% of grocery sales by 2025.
CATALYST: E-COMMERCE
Total e-commerce sales accounted for 12% of core retail sales in 2017 and were approx. $250 billion. The largest e-commerce company by far is AMAZON, which holds about 25% of public and private reported online sales. Other companies than also rank the highest include: eBay, Apple, Walmart, Home Depot, Wayfair, Best Buy, Costco, Macy’s and QVC.
By 2030, total online sales are expected to be about $1 trillion or roughly 32% of total retail sales. The standard e-commerce order can require three times more warehouse space than a traditional retail transaction. With every $1 billion in new e-commerce sales equating 1.25 million square feet of new warehouse demand, an estimated 240 million square feet of new space will be needed for e-commerce alone over the next 5 years.
E-commerce accounts for about 10% of non-automobile retail sales, but at best it represents only about a third of industrial property occupancy. Conventional warehouse users and third-party logistics companies still fueled the bulk of the leasing activity. Prologis, and other companies analyzing the industrial real estate market, ascertain that e-commerce comprises about 20% of new leasing for distribution centers.