Online Shopping Drives Up Rent For Warehouses

As eCommerce grows and the push for speedier delivery escalates, companies are seeking smaller warehouses and industrial space near major cities, The Wall Street Journal reported on Thursday (Oct. 10).

Consulting firm CBRE Group said demand for warehouses from 70,000 to 120,000 square feet is pushing up rents. Over the past five years, rents have increased by over 33.7 percent to an average of $6.67 per square foot. Space availability is down 7.4 percent from 11.3 percent.

Conversely, available warehouse space larger than 250,000 square feet is up by 15.6 percent, CBRE said. Overall industrial rents are up 23.9 percent from 2014-2019.

Spaces smaller than 120,000 square feet have averaged about 1 percent of available inventory since 1990, according to CBRE. Warehouses larger than 250,000 square feet accounted for about 3 percent.

“There is less flexibility and higher pricing,” Matthew Walaszek, CBRE’s associate director of industrial and logistics research, told the WSJ. “It’s really difficult for the smaller players.”

Industrial rents are expected to rise by about 5 percent in 2020, Walaszek said.

Businesses have started using smaller fulfillment centers near customers for faster delivery. Many of those spaces “are meant for quick inventory turns, not for storage but for moving products in and out quite rapidly,” he noted.

Amazon’s plan for one-day Prime delivery is further burdening logistics providers and retailers.

Urban developers confront “competition with other uses such as retail, multi-family apartments, offices and mixed-use developments that generate higher taxes and higher rents,” Walaszek added.

It’s not only a race for space when it comes to warehouse and logistical needs by eCommerce operators. It’s also a race for the best technology – in large part, a race to deploy the best, most efficient robots in eCommerce fulfillment operations. That race, like so much in eCommerce and its logistical needs, is being dominated by Amazon.

As deliveries become even faster – and more proactive, shipping items to consumers before they even order them (such as household supplies) – the warehouse and fulfillment side of the eCommerce industry is set to take on even greater importance.