Retailers need way more fulfillment space to keep up with booming online sales
Retailers will need an additional one billion square feet of industrial real estate by 2025 as the need for warehouse space grows along with online sales, according to a new report by JLL, the commercial real estate firm.
The novel coronavirus pandemic has sped up the pace of online activity with retailers now at levels they didn’t expect to reach for another two to five years. Consumers are becoming increasingly comfortable about shopping online as they avoid stores where others may pay little heed to social distancing and often refuse to wear face coverings.
JLL reports that 35 percent of its industrial leasing activity was tied to e-commerce operations before the outbreak. It now expects that percentage to go up as much as 50 percent by the end of the year as retailers expand capacity to meet demand.
Retailers have adapted to store closings and the current online sales boom in a variety of ways. Some have shifted fulfillment activity to the store level to handle local deliveries or curbside pickup of online orders. This has happened in both “dark” store environments and others open to shoppers, but with social distancing and safety measures in place.
The search for fulfillment center space has also led to speculation that companies such as Amazon.com may look to acquire former anchor store real estate in malls with an eye towards converting them.
Regardless of where they find it, retailers are going to need a lot of space to meet demand, according to Chris Caton, head of global strategy & analytics for Prologis, the world’s largest owner, operator and developer of logistics real estate. He said that his company “estimates these customers require 1.2 million square feet of distribution space for each $1 billion in sales, which means e-commerce requires three times the space as traditional through-put distribution.”
- Industrial real estate demand to grow to 1 billion square feet by 2025 – JLL
- COVID-19 exposes retail’s supply chain shortcomings – RetailWire
- Is the future of retailing going dark? – RetailWire
- Is curbside pickup just getting started? – RetailWire
- Is Amazon about to buy J.C. Penney? – RetailWire
DISCUSSION QUESTIONS: Do you expect to see retailer demand for additional square footage for online fulfillment continue to grow over the next several years or will it soon plateau? How do you expect chain retailers to address the challenge?