CBRE: MOST US WAREHOUSES ARE INADEQUATE FOR E-COMMERCE DISTRIBUTION, DESPITE RECENT CONSTRUCTION PUS

DALLAS - May 24, 2018 - Momentum for additional construction of U.S. warehouses is not likely to wane, because the vast majority of the country's warehouse stock is decades old and ill-suited for the demands of e-commerce, according to a new report from CBRE.

With an average building age of 31 years, the Dallas-Fort Worth industrial market is younger than the national average building age of 34 years. But sophisticated users will continue to create demand for more modern space in DFW, according to Steve Berger, Senior Vice President, CBRE.

"More sophisticated tenants are demanding more advanced warehouse and distribution facilities to accommodate the growing e-commerce demand," said Mr. Berger.

"The continuing modernization of the industrial stock is being driven by the need for greater efficiency to satisfy increased demands arising from changes in technology and consumer expectations," Berger continued.

"Facilities must operate with a higher velocity resulting in increased employee counts and the corresponding need for more parking and support facilities. Larger truck courts are required to facilitate improved flow. Higher ceiling heights allow for more dense storage and multi-level pick systems," said Mr. Berger.

While it may appear that developers have raced to erect warehouses and distribution centers in recent years, the new supply's impact within the wider scope of the entire U.S. warehouse market has been muted. Despite roughly 1 billion sq. ft. of new construction over the past decade, the average age of warehouses rose to 34 years from 26 in that span. That's partly because that new construction amounts to only 11 percent of the entire 9.1 billion-sq.-ft. inventory.

CBRE analyzed data from 56 major U.S. markets and found that most facilities built prior to the mid-2000s have limitations that preclude their use for e-commerce distribution, such as low ceilings, small footprints, uneven floors and inadequate docking.

In contrast, modern facilities with larger footprints, high ceilings and close proximity to major population centers are in strong demand. Three quarters of U.S. warehouses that went under new leases in 2016 and 2017 were buildings constructed within the past five years.

Just keeping the industry's average building age constant would require the construction of 275 million sq. ft. of warehouse and distribution-center space annually. Actual construction has averaged 100 million sq. ft. annually in the past decade, including a peak of 183 million sq. ft. last year.

"E-commerce has created demand for a new type of warehouse with different dimensions, locations and capabilities than what most of the existing U.S. supply offers," said David Egan, CBRE Global Head of Industrial & Logistics Research. "Given that only a small portion of the overall market is truly modernized, there is a strong case for new construction and redevelopment of outdated facilities in many markets."

The breakdown of markets with the oldest and youngest average ages of warehouse stock tends to fall along geographic lines. Many of the oldest markets are in the Northeast, led by Northern New Jersey with an average warehouse age of 57, Pittsburgh (56), Boston (44) and Philadelphia (44).

The youngest markets mostly are in the West and South, led by California's Inland Empire (20 years), Las Vegas (23), Phoenix (26) and Atlanta (29).

To read the full report, click here.

About CBRE Group, Inc.
CBRE Group, Inc. (NYSE: CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world's largest commercial real estate services and investment firm (based on 2017 revenue). The company has more than 80,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.