E-Commerce Leads to Demand for Industrial Buildings

By Natalie Jones / 09.21.20 / 3 min read

By now, we’ve become familiar with ways that the pandemic has altered the economic landscape. Within commercial real estate, this means that there is a decreased need for office space due to at-home work and bankruptcy among retail chains. Several undesirable effects run through the industry, yet industrial properties have actually experienced a rise in demand as more consumers turn to online shopping during these unprecedented times.

A Need for Merchandising Space

Across the country, this pandemic-related growth of e-commerce shifts companies into a “just in case” strategy to avoid depleting their merchandise. Consequently, these companies invest in more stock at facilities in close proximity to consumers to facilitate shipping.

Steve Medwin, executive managing director and co-lead of the industrial services division for South Florida with Newmark Knight Frank, shared his insight on the effects of the “just in case” strategy.

“The bigger impact is being felt at the larger facilities where it’s feasible to store additional inventory,” said Medwin. “Naturally, more inventory leads to more demand for space and that demand is causing rental rates to increase.”

This trend in rental rates has appeared in the top 11 industrial markets. Mark Glagola, senior managing director for the Mid-Atlantic with real estate services firm Transwestern, notes that this is especially prominent in product that’s Class A or near urban cities.

Expansion Opportunities

The upward trend is also seen through progress within the logistics sector, creating potential for growing certain industrial facilities. Glagola says that sorting centers, Amazon’s definition of a close-in facility that allows for a smooth transfer of goods through its dock doors and layout for parking. He explains that sorting centers can lead to merchandise returns as well, adding to the importance of industrial facilities.

The boom in e-commerce creates investment opportunities as seen with Goldman Sachs. In partnership with Dalfen Industrial, the company will purchase 46 “last mile” industrial facilities throughout multiple metro areas. These facilities have tenants including Amazon, Frito-Lay, and Sherwin Williams. A deal of this size illustrates the ongoing value of warehouses for companies.

With a higher concentration of online sales, the need for industrial space increases in order to maintain adequate merchandise inventory and satisfied customers. E-commerce boosts the industrial sector, presenting a bright spot within commercial real estate. To read the full articles on this, click below:

Industrial Rent Collection vs. Other Segments

Booming E-commerce Sales Drive Demand for Industrial Facilities

Goldman Bets on Warehouses with Virus Spurring Online Shopping