Increasing E-Commerce Demands Causes Tighter Warehouse Space Growth

Warehouse space keeps getting harder to find as the drive toward online retail sales pushes more goods into already-squeezed U.S. distribution centers.

The availability of industrial property declined in the third quarter as nearly 50 million square feet of warehousing capacity came onto the U.S. market in the three-month period, according to real-estate brokerage firm CBRE Group Inc. CBRE +0.46% Distribution and e-commerce fulfillment operations are moving into new space just as quickly as it is being built, CBRE said.

“The underlying story is a really strong consumer economy,” said Richard Barkham, global chief economist at the firm. “But we’ve also got this big structural shift, which is the growth of e-commerce.”

 Photo Credit:   BizJournals

Photo Credit: BizJournals

As shoppers increasingly go online to make purchases of all kinds, from groceries to apparel to furniture, logistics networks are bursting at the seams. In a report Thursday, CBRE said the industrial availability rate—a measure of properties that are vacant or soon to become vacant—fell for the 33rd straight quarter, to 7.1%.

That is the lowest the measure has been since 2000, when it reached 6.6%.

The high demand comes as companies have been pushing more goods through distribution networks this fall to get inventory in place for the busy holiday shipping season.

According to the National Retail Federation, last month major U.S. seaports handled import volume of an estimated 1.84 million 20-foot equivalent units, a standard measure for container cargo. That was up 2.7% from the same month in 2017, following a 3.4% year-over-year rise in August and a record-setting July, with 1.9 million loaded TEUs arriving at docks.

Trade analysts say impending tariffs may have prompted importers to place their holiday orders early, driving higher volumes in the earlier summer months. But even with 10% levies now on roughly half of retailer imports from China, NRF estimates inbound volumes will continue to grow through the end of the year.

That means warehouse space is likely to remain tight, Mr. Barkham said. Strong economic conditions and the stimulus from tax cuts is drawing out what’s already been a lengthy cycle for the industrial market, he said, keeping demand strong.

“We thought this cycle might end slowly but it’s got extra legs,” he said.

Article Resource: Wall Street Journal