As business-to-business and business-to-consumer e-commerce continues to grow, manufacturers, distributors web merchants and others are going to be competing for more modern warehouse space.
“1.25 million square feet of logistics space is needed per $1 billion of annual incremental online sales,” says Adam Mullen, senior managing director, industrial and logistics, for CBRE Group Inc., a large Los Angles commercial real estate services and investment company. “This translates into approximately 184 million square feet of e-commerce logistics demand by 2020.”
But B2B and B2C companies in need of newer and better automated warehouse had best be prepared to pay more for it, CBRE says. E-commerce is driving lots of warehouse leasing and sales deals these days. “About one-third of all our deals are in e-commerce and we do a new deal somewhere on a typical day every eight minutes,” Mullen says.
The size and cost of leased warehouse space for an e-commerce company, such as a distributor or online retailer, are getting bigger. In general, the size of the space for e-commerce companies leasing new warehouse space ranges from 500,000 to 1 million square feet, Mullen says. But in the past few years the cost per square foot of leasing warehouse has doubled in some markets to around $8, CRBE says.
What’s driving prices higher is the old age of existing warehouse space. The average age of a U.S. warehouse is now 34 years, and many older facilities lack such fundamental features as high ceilings, more load bays and bigger floor space. But many e-commerce companies need these and other features to accommodate more automated supply chains, logistics management and order management, CBRE says.
Although commercial developers and builders constructed about 183 million square feet of new warehousing space last year, up from about 100 million new square feet of space each year over the past decade, new space is still at a premium and e-commerce companies must compete with other entities for available floor space.
“E-commerce companies are going to be fighting for new warehouse space against themselves and others,” Mullen says. “It’s going to be that way for a while.” In addition to new warehouse space with bigger ceilings and more loading bays, e-commerce companies need lots of parking space for big trucks and employees and enough floor space to accommodate new logistics and fulfillment technology—including robots—that can be scaled quickly to accommodate peak holiday demand.
Warehousing space is tight, but also varies widely for different regions of the country, CRBE says. For example, the overall vacancy rate for the U.S. at the end of the second quarter was 4.4%, but ranged from of 13.2% in San Antonio, Texas, to 2.9% in Savannah, Ga., CBRE says.
The average cost per square foot nationally in Q2 was up about 5% year over year to about $7.11, CRBE says.
CRBE doesn’t specifically track the impact the biggest online merchant—Amazon.com—has on the broader e-commerce-related commercial warehouse market.
But Amazon has a big and growing appetite for more space, especially for its 100 million Amazon Prime customers. In the U.S. Amazon operates 329 warehouse facilities—including 124 fulfillment, return and supplemental centers—totally about 125 million square feet, says supply chain and logistics consulting firm MWPVL International.
As e-commerce companies compete for available new commercial warehouse space, many companies will make tradeoffs or decisions that serve their best long-term interest, Mullen says.
“If the facility is right in the city center and the older warehouse is the best location to serve the most customers the most efficiently, that e-commerce operator may forego a new space that may accommodate the latest technology,” he says.
This article was originally published in: https://www.digitalcommerce360.com