Robotic arm taking a cardboard box in a warehouse
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As retailers strengthen their e-commerce operations and invest in faster delivery for customers, demand for warehouse space is rising, according to a new report.
This year, demand among mass merchandisers for logistics facilities to store inventory and pack and ship online orders will be the highest it has ever been, said JLL, a commercial real estate services company.
JLL is tracking pent-up demand from big-box and value retailers, including Walmart, Target, Big Lots, TJX and Costco, all vying for warehouse space. Some of these companies are trying to catch up with Amazon, which for years has been gobbling up warehouses – large and small – in central locations across the country. More recently, that buying and leasing activity has spread to more densely populated areas, including New York City.
“We’ve come a long way in shifting consumer behavior from buying in stores to online,” Craig Meyer, president of JLL’s Americas industrial division, said in an interview. “That’s the existential engine for US demand.”
Demand for warehouse space is growing
There are a few key markets in the United States where companies, including third-party logistics providers such as UPS and FedEx, face much stronger competition for warehouse space.
Demand has skyrocketed in Columbus, Ohio, JLL found, a market where nearly half of the country’s population is within a day’s drive. According to JLL, industrial real estate demand in Columbus from 2020 will increase by 61% in 2021, after a 13.7% increase in the previous year.
Meanwhile, while ports along the Southern California coast are deeply behind, requests for warehouse facilities are reaching unprecedented levels in Savannah, Georgia, JLL said. Demand for industrial real estate in the Savannah area has grown nearly 10 million square feet in the past year, the report said.
According to the Georgia Ports Authority, container volume entering the Port of Savannah increased by 28% between 2016 and 2020. Recently, the GPA board approved funding to expand capacity in the port to handle additional containers.
“The load is shifting to the east coast. And that’s been going on for a while, but was compounded again by Covid,” Meyer said. “There are a lot of companies that want to get there as a staging point, now, as [containers] get off the boat.”
Across the country, rents, the basic rents that landlords and tenants settle on, are rising faster than demanded rents, according to separate data from real estate company CBRE. This is another sign of a hot market. Industrial rents rose 9.7% in the first five months of 2021, compared to the same period a year earlier, CBRE found. The requested rents rose only 7.1% in the same period.
“We’ve seen giant leases, high-density leases signed in Brooklyn, Queens and markets around New York City,” Meyer said. “And the remarkable thing about that is that there are rents that are equal to office building rents. Because being close to that cluster, for that last mile, is so crucial.”
Prologis, the largest US owner and manager of logistics real estate per square foot, sees a strong gap between supply and demand.
“The momentum in the market is very strong against a background of very high scarcity in our company,” Chris Caton, head of the research group at Prologis, said in an interview. “The vacancy rate in the US is four and a half percent, in fact the lowest point in 40 years. There has never been so little available to lease, at a time when customers really, really need it.”