E-commerce is driving up demand for prime warehouse space closer to urban centers, Bloomberg reports, as Amazon and competing retailers build more warehouses to speed up fulfillment. Online retail accounts for 20% of current demand for warehouse space, according to Green Street Advisors, quoted by Bloomberg.
Rents for prime warehouse space in the U.S. rose 9.9% in 2015, well past the 2.8% increase in the global industrial leasing rate. Six markets in particular were among the nine with the biggest increases globally, with Oakland (29.8%) topping the increases seen in also-hot Northern New Jersey, according to real-estate brokerage firm CBRE Inc.
While in the past smaller retailers would aim to have warehouses centrally located in the country, many now are also moving inventory to multiple smaller spaces to get goods to customers faster, Bloomberg reports.
Retailers are already feeling the pinch of lower-margin e-commerce as they boost their e-commerce and omnichannel efforts. But as they work to streamline their logistics and as same-day delivery startups work to scale their operations, many of the costs will continue to go up, as seen in this report on warehouse availability and rents.
Sam Chandan, president of real estate research firm Chandan Economics, told Bloomberg that there’s a risk to building out warehouse properties now as the segment is booming, as they could be left with unused properties if the market were to die down.
That could put yet another kink in the same-day delivery boom, which, at least for some startups, is beginning to deflate a bit in the face of ebbing venture capital interest, and on already-meager e-commerce margins. The massive rent increases measured by CBRE are in areas most heavily served by same-day delivery companies, and it’s not clear how much wiggle room delivery startups—or even Amazon—have when facing such rapidly and steeply rising costs.
“There are huge premiums being placed right now on being close to the consumer—speed of service, speed of delivery is a critical component of why people choose to buy from one retailer over another,” David Egan, CBRE’s head of industrial and logistics research for the Americas, told the Wall Street Journal earlier this month. “To get the goods to consumers fast, you have to get close to them.”