Warehouse space shortage to last for two more years, panel says

Soaring e-commerce shopping rates have combined with building delays in many regions to cause a crunch in the supply of new warehouse space for retailers and third party logistics providers (3PLs), a panel of real estate experts said today at the Council of Supply Chain Management Professionals (CSCMP)’s Edge conference.

The Covid-19 pandemic has triggered a “firestorm” of demand for industrial space, due to accelerated online shopping habits, a corresponding jump in product returns that require additional storage space, and a shift from just in time (JIT) inventory management to greater stockpiling of goods, said Stephanie Rodriguez, vice president of leasing and development for Duke Realty. 

At the same time, industrial developers put an “extreme pause” on the building and purchasing of new sites during market uncertainty in the early days of the pandemic, she said in a session on “Industrial Real Estate: Trends and Insights for the Supply Chain.” Activity returned in recent months but that boom met with a construction backlog that will take 18 to 24 months to clear.

Additional hurdles to recent warehouse construction include: communities pushing back against suburban DCs, municipal inspection departments beset by staffing shortages, and supply chain shortages of materials ranging from construction lumber to steel beams and roofing materials, panelists said.

Despite those challenges, demand for warehouse space will continue to rise because of basic economics, said John Morris, executive managing director at the real estate firm CBRE. Transportation costs represent between half and two-thirds of logistics spending, so retailers are highly motivated to rent DC space close to their customers, he said.

And that equation is even more true for e-commerce than brick and mortar, Morris said. Warehouse and transportation costs as a percentage of sales add up to an average of 12.3% for publicly traded companies with greater than half their sales done online, but only 6.2% for those doing less than half their business online.