Increase in E-Commerce Creates a Booming Demand for Warehouse Space
As foot traffic in brick-and-mortar stores continues to decline, commercial real estate is being hit hard by mall closings. But that’s good news for warehouse landlords, who are seeing an increase in demand driven by the rise in online shopping.
Warehouses: The Hot New Real Estate Properties
Most retail properties are controlled by real estate investment trusts, also known as REITs. Retail store closings and bankruptcies have caused retail REITs to drop nearly 20 percent in early 2017.
On the other hand, industrial REITs that control warehouses are benefitting from a demand that outstrips current supply. Jonathan Petersen, analyst for global investment banking firm Jeffries, says the shift to e-commerce has caused price targets for industrial REITs to be raised across the board.
According to industry estimates, online retailers require three times as much warehouse space as traditional brick-and-mortar retailers. Peterson explains that e-commerce makes up 10 percent of retail sales, and simply doubling their share would create a need for 600 million square feet of new warehouses.
What Does the Future Hold?
The increase in e-commerce and warehouse demand is more than just a cyclical event. Peterson goes on to say that he and Jeffries see it as the beginning of a “secular growth trend” that’s expected to continue for several years.
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