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U.S. E-commerce is Facing Serious Warehouse Storage Challenges

August 17 2020 03:34
Lynn
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With the surge in online sales during the COVID-19, the United States will need more warehouses to store piles of boxes and process online shopping orders.

 

With the implementation of the blockade measures, many physical stores were temporarily closed, prompting shoppers to switch to online shopping for everything from fresh groceries to household items to pet toys. After the pandemic, it is expected that online shopping will continue to grow as it has been for years.


According to a new report from Jones Lang LaSalle (JLL), as more and more people click the "buy" button on the Internet instead of risking being infected with the virus to go to the shopping mall, by 2025, the market The demand for additional industrial real estate may reach 1 billion square feet (about 90 million square meters). The commercial real estate services company said that before the COVID-19 crisis, about 35% of its industrial leasing activities were related to e-commerce. But to this day, Jones Lang LaSalle said that up to 50% of its leasing activities will be tied to the online retail industry in 2020.


"The first quarter was the quarter in which we had the most leasing activity in three years," said Craig Meyer, president of Jones Lang LaSalle's Industrial Americas. "We see that (the e-commerce company) is facing more pressure than the typical holiday season when it comes to meeting consumer demand," Meyer explained a recent situation: About 30 days ago, a retail-related company applied for a lease of 1.2 million square feet (about 110,000 square meters) of storage space in Delaware and moved almost immediately Go in and start fulfilling orders for fresh food. He explained that part of the warehouse includes cold storage for storing food that needs to be refrigerated.


"This is unheard of," Meyer said. "The lease has just been signed, and they moved in in less than 30 days." According to Meyer, under normal circumstances, such a transaction spans up to 9 months from signing the lease to moving in.


Jones Lang LaSalle estimates that the United States will also need 100 million square feet of cold storage facilities to keep up with consumer demand and sales trends.


Real estate investment trust company Prologis is Amazon (NASDAQ: AMZN)'s largest rental property owner, and according to the company's estimates, e-commerce companies need 1.2 million square feet of distribution space for every $1 billion in sales.


At the same time, market research company eMarketer predicts that US e-commerce sales will account for about 14.5% of total retail sales this year, or $709.78 billion. The company said that by the end of 2024, this proportion will rise to 18.1% of total retail sales when online sales will exceed $1 trillion for the first time.


Meyer said that industrial real estate is the "darling" of today's commercial real estate industry. The prospect of this sector is definitely brighter than that of real estate sectors such as office buildings, retail space and hotel space. The vacancy rate of these properties is getting higher and higher, and fewer new transactions have been concluded.


Especially in the retail industry, more and more closed stores are expected to break the record this year, forcing owners to find new uses for vacant spaces. In addition, rents are also under pressure because retailers who want to keep stores open are trying to renegotiate deals, hoping to use the chaotic situation in the market to gain benefits for themselves. Former department store executive Jan Kniffen predicted that by 2021, one-third of shopping centers in the United States will disappear. Conversely, this may also hit cities and towns that rely on shopping centers for tax purposes.


Transforming retail space into a warehouse may be a solution, as fewer warehouses are available for rent. In some cases, the closed mall has been transformed into a messy logistics center. For example, in Memphis, Tennessee, a closed Sam’s Club store has now become Sam’s e-commerce compliance center.


Meyer warned that despite this, the conversion of the previous retail space into a warehouse still faces obstacles

 "According to the zoning law, these (retail spaces) are all residential areas," he said. "There will be more people thinking about this."