Most Read Articles
Warehouse network ill-suited for e-commerce needs, report finds
The current U.S. warehouse infrastructure is aging, obsolete, and ill-suited to support the unique characteristics of e-commerce fulfillment, foretelling a powerful building boom as billions of square feet are added to meet burgeoning demands for online and omnichannel fulfillment, according to a report released Wednesday by real estate and logistics services firm CBRE Inc.
Over the past 10 years, the average warehouse age rose to 34 years, an 8-year increase, despite roughly 1 billion square feet of new construction hitting the market during that span, CBRE said. That's because the new construction, which on its face seems like a beehive of activity, amounted to just 11 percent of the total 9.1 square foot inventory, it said. In an analysis of 56 large U.S. markets, CBRE found that most facilities built prior to 2005 had low ceilings, small footprints, uneven floors, and inadequate docking areas, none of which are conducive to effective e-commerce distribution. By contrast, modern facilities have such positive features as larger footprints, high ceilings, and close proximity to major population centers. Three quarters of U.S. warehouses that went under lease in 2016 and 2017 were buildings constructed within the past five years, according to CBRE data.
About 275 million square feet of warehouse and distribution center space would need to be built each year just to keep the current building age constant, CBRE said. Actual construction has averaged 100 million square feet annually over the past decade, with the peak of 183 million square feet set in 2017. Not surprisingly, the firm doesn't expect U.S. warehouse construction activity to abate any time soon. Such trends would benefit a wide range of companies, including Los Angeles-based CBRE. "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 and 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portion of the overall market is truly modernized, there is a strong case for new construction and redevelopment of outdated facilities in many markets."
Many of the oldest markets are in the Northeast, led by northern New Jersey with an average warehouse age of 57, Pittsburgh at 56, and Boston and Philadelphia each at 44. The youngest markets are predominantly in the West and South, with California's Inland Empire averaging 20 years, Las Vegas at 23, Phoenix at 26, and Atlanta at 29.
The existing U.S. infrastructure has been straining for years under relatively tight supply but, more significantly, the boom in online orders that has triggered demand for massive distribution facilities. Vacancy rates have hit record lows for several years, and 2018 is expected to be more of the same. Nationwide vacancy rates could drop to the 5-percent range, with high-demand markets like southern California seeing vacancies at much lower levels.
Join the Discussion
After you comment, click Post. If you're not already logged in, you will be asked to log in or register.
We Want to Hear From You! We invite you to share your thoughts and opinions about this article by sending an e-mail to ?Subject=Letter to the Editor: Quarter : Warehouse network ill-suited for e-commerce needs, report finds"> . We will publish selected readers' comments in future issues of CSCMP's Supply Chain Quarterly. Correspondence may be edited for clarity or for length.