More Industrial Space Needed to Meet E-Commerce Demand

July 10, 2020

Demand for industrial real estate could require an extra 1 billion square feet by 2025, predicts JLL, a commercial real estate firm. A call for more fulfillment centers is rising as e-commerce continues to grow even bigger since the pandemic. Businesses are finding they need more warehouses to store boxes and keep up with the pace of demand from online shoppers.

U.S. e-commerce sales could comprise about 14.5% of total retail sales, or $709.78 billion this year, according to the firm eMarketer. By the end of 2024, that could jump to 18.1%, with online sales surpassing $1 trillion for the first time, eMarketer predicts. Craig Meyer, president of JLL’s Americas industrial division, calls the industrial sector the “darling” of the commercial real estate industry.

Before the COVID-19 pandemic, about 35% of JLL’s industrial leasing activity was related to e-commerce. Now JLL reports that as much as 50% of its leasing activity is connected to the online retail industry. “The first quarter was our largest leasing quarter in three years,” Meyer told CNBC. “We’re seeing more pressure on [e-commerce companies] than the typical holiday season to meet consumer demand.”

Transactions for warehouse space are occurring at a quicker pace due to the demand. Meyer told CNBC that a retail-related company leased a 1.2 million-square-foot warehouse space in Delaware and moved in immediately to start fulfilling orders for fresh items. “That is unheard of,” Meyer says. “The lease was signed, and they moved in in less than 30 days.” Deals like this typically occur over a nine-month period, from signing a lease to moving in, Meyers says.

JLL predicts that the U.S. needs another 100 million square feet in cold-storage facilities to keep up with sales trends.

As retailers hunt for more space, some are using now-defunct stores to transform them into warehouse centers to help meet customer demand. For example, in Memphis, Tenn., a shuttered Sam’s Club store has become a Sam’s Club e-commerce fulfillment center. But vacant big-box retail stores or even vacant malls can’t always be easily converted. “There are things like zoning laws; these are residential areas,” Meyer told CNBC. “There’s going to be a lot more involved with imagining these things.”