Sell for More News is a weekly blog series with interesting information from the world of commercial real estate.
With online sales exploding during the so-called coronavirus pandemic, the U.S. is going to need more warehouses to store hoards of boxes and handle those orders.
Shoppers have turned to their computers and smartphones to buy everything from fresh groceries to new home furnishings to pet toys. And even after the pandemic subsides, the trend of people buying more and more online is expected to continue.
Additional 1 billion square feet needed by 2025
And so with more people clicking “buy” instead of venturing to the mall, demand for industrial real estate could reach an additional 1 billion square feet by 2025.
Prior to the Covid-19 crisis, about 35% of its industrial leasing activity was related to e-commerce. But now, as much as 50% of that leasing activity has already been tied to the online retail industry in 2020.
Keep in mind, the pandemic has put more pressure on e-commerce companies than even the typical holiday season.
Also, it’s believed that the U.S. needs another 100 million square feet of cold-storage facilities just to keep up with consumer demand and sales trends.
To put into perspective how much extra warehouse space is needed, Prologis, a real estate investment trust that is also Amazon’s largest landlord, has estimated that e-commerce companies require 1.2 million square feet of distribution space for each $1 billion in sales.
The firm eMarketer is predicting U.S. e-commerce sales will make up about 14.5% of total retail sales, or $709 billion, this year. By the end of 2024 that percentage will grow to 18.1% of all retail sales, with online sales surpassing $1 trillion for the first time, it said.
Industrial real estate is the “darling” of the commercial real estate industry today
The sector certainly has a brighter outlook than some of its peers including office, retail and hotel space, where vacancies are increasingly growing and fewer new deals are being done.
In retail specifically, store closures are piling up and are on track to break a record this year, pressuring landlords to find new uses for emptied spaces.
Rents are also under pressure, as companies looking to keep their stores open are working to renegotiate deals, hoping to leverage the market’s disarray in their favor.
Converting malls to warehouses
Former department store executive Jan Kniffen has predicted a third of America’s malls will vanish by 2021. Warehouses could be one solution, since supply is harder to come by.
In Memphis, Tennessee, for instance, a shuttered Sam’s Club store is now home to a Sam’s Club e-commerce fulfillment center.
Still, there are hurdles in taking a former retail space and turning it into something else…like zoning laws. Many residential areas simply don’t want them.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com