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How E-Commerce is Increasing the Demand for Warehouse Space

The coronavirus has driven a surge in online shopping, and warehouse space is suddenly a hot real estate commodity. U.S. consumers spent $347.26 billion online in the first two quarters of the year, up 30.1% from $266.84 billion from the same period in 2019 according to data from the U.S. Department of Commerce. While e-commerce sales have consistently been on the rise, this year’s surge stems from consumers avoiding stores due to pandemic-related health concerns. As the holidays approach, e-commerce sales are only expected to skyrocket.

In response to the growing demand for online shopping solutions, the demand for industrial real estate space has increased. In an analysis of coronavirus’ impact on warehousing and distribution, industrial real estate giant Prologis estimated that “accelerated e-commerce adoption and higher inventory levels could generate 400 million square feet of additional demand for warehouse space.”

Chris Caton, Prologis’ head of research and analytics stated in an interview, “The key message here is that [COVID-19] is bringing change to economies and marketplaces” as consumer buying habits shift and manufacturers and retailers respond to changing demands. Compared to brick-and-mortar stores, online retailers need about three times more warehouse space to generate comparable revenues. And they also tend to stock a larger variety of products, which requires more space. Online retailers, however, are not the only ones driving the need for more storage space.

In recent months we have seen supply chains pushed to their limits, leading to shortages of goods ranging from toilet paper and disinfectant to bicycles and puzzles. Many of these companies relied on “just-in-time,” inventory models that aim to minimize product storage through careful demand forecasting. While this model may be low cost and efficient, it fails in crisis. Some companies are looking to increase stock of certain products to meet consumer demand, another factor contributing to the growing need for industrial real estate space.

In partnership with advisory firm Oxford Economics, Prologis found that $2.2 trillion worth of goods flows through Prologis facilities worldwide today, a 69% increase compared to 2017. “These figures demonstrate how much industrial real estate has grown — and it will only increase as consumers change their buying habits,” Caton added, “This study shows just how critical logistics real estate is to the vitality of the global economy.” Staying afloat and meeting consumer demands will require retailers to secure warehouse space — whether that means leasing a no-frills, industrial building or effectively repurposing other properties, like malls and hotels.