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Warehouse Space is Becoming Increasingly Important


A recent article in Commercial Property Executive, Industrial Real Estate’s Positive Prognosis, highlights a number of positive trends which should increase the demand for warehouses especially in cities with ports, like the Port of Wilmington and Philadelphia port, and how those looking to sell a warehouse may find their property in high demand.

  • The “just in time inventory “supply-chain strategy is suffering under the strain of this expansion of e-commerce. As a result, the need for warehousing of additional inventory has grown.  Additionally, retail locations that are temporarily closed will need additional storage for their excess inventory, creating short-term demand for temporary space.
  • Home delivery of groceries has become dramatically more popular and overall grocery sales have increased as well.
  • This underscore’s CBRE estimate that an additional 75 million to 100 million square feet of cold storage is needed. It is possible to retrofit existing inventory for cold storage, but purpose-built climate-controlled facilities are more desirable and tenants are willing to pay a premium to occupy them.
  • On the durable goods side, increasing demands on e-commerce will require additional warehouse-distribution facilities—bf particularly in the port-of-entry markets.
  • The largest markets and point-of-entry markets can be expected to see increased demand for warehouse and distribution space.

As the article mentions the initial increase in demand may be for short term leases but overall warehouse space will see a growth in demand to the increased shift in consumer behaviors, primarily around grocery delivery.  The increase for large markets and point of entry markets should certainly see an increased demand for space, one area where I disagree with the analysis is the demand for warehouses in tertiary markets. If oil continues to remain abundant, and low cost, we could see an increase demand in tertiary markets as the current lower cost could be offset.

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