The sudden disruption of businesses due to the coronavirus pandemic has pushed businesses into reshaping their supply chains, and thus there is an increase in demand for U.S. warehouse space.
According to CBRE Group Inc., a real-estate firm, the activity of industrial real-estate such as the issuance of new leases and renewal of leases increased by 43% from April 15 to May 14 compared to the last 30-day period. This means that the activity of industrial real-estate registered a faster recovery from the effects of the pandemic than expected.
The activity of industrial real-estate reduced by 29% between March 15 and April 14 when the government extended the lockdowns to halt the spread of the coronavirus across the U.S. However, the total transactions for the year 2020 are higher by 2.8% compared to the same period in 2019.
During the quarantine period, food and consumer goods suppliers and retailers had to increase their e-commerce capabilities since there was an influx of orders from home shoppers. Companies are increasingly setting up new business spaces, particularly in areas with a large population, to upscale and remodel their distribution procedures since the demand for online shopping services is expected to continue.
A statement by CBRE’s global head of industrial and logistics research, James Breeze, indicated that for the next 30 days since lockdown began, the company experienced a huge turnaround. The company had a sharp increase in activities attributed to the stay-at-home and quarantine directives issued by the government.
During the first month of the pandemic, the transactions involving warehouses of 100,000 square feet or more fell by 5%. However, according to CBRE, the demand for these warehouses rose to the highest monthly level by May 14.
The need for additional storage space by retailers comes after an evaluation of their logistics networks after the disruption of normal operations during the lockdowns that were driven by the coronavirus pandemic. According to Jess Dankert, the vice president of the supply chain for the Retail Industry Leaders Association, the pandemic accelerated the efforts of merchants to move products closer to consumers.
Ms. Dankert acknowledged that during the pandemic, some retailers have heavily relied on stores to satisfy their online clients, while others seek to construct dark stores in urban centers to move away from larger storage facilities located in remote areas. She further added that there was the relocation of inventory and adapting structures during the coronavirus pandemic.
Due to business closures, many retailers are burdened with unsold inventory. However, according to Ms. Dankert, the unsold inventory does not seem to be straining warehouses located in busy areas like Long Beach and Los Angeles ports in Southern California.
Mr. Breeze from CBRE said that they experienced a rise in short-term leasing deals that would reflect the presence of excess inventory or the increase in demand for specific goods (medical supplies or food). The head of global strategy and analytics at Prologis Inc. (an industrial real-estate company), Mr. Chris Caton, also acknowledged that they actively provided short-term leasing in March and April.
Estimates from Prologis indicate that businesses may increase their inventories over the long term by between 5% and 10% to protect themselves against the demand surges that affected other businesses like grocery stores in the early days of the lockdowns.
Prologis further projects that in the next two to three years, the demand for U.S. warehouses by up to four hundred million square feet. These projections are attributed to the rapid development of e-commerce that would require more space than the distribution operations that traditionally served stores.