Aging U.S. Industrial Space Can't Meet Booming Demand For E-Commerce Facilities

Most of the country's existing stock of industrial buildings is too old to meet the increasing demands of e-commerce, according to a new report by CBRE. New facilities have been developed in recent years, but not enough to meet the coming demand.

The growing expectation among consumers that anything ordered online can be delivered in a flash is spurring demand for warehouse and distribution facilities, particularly last-mile delivery in dense urban areas.

The rush to develop new warehouse/distribution space has been intense in recent years, totaling about 1B SF of modern facilities nationwide in the last 10 years, according to the report. Yet that only accounts for about 11% of the total inventory, which is 9.1B SF.

The average age of U.S. warehouse/distribution properties, according to CBRE data, is now 34 years. That being the average, a large chunk of U.S. space is even older: nearly 1B SF of the inventory is more than 50 years old and characterized by clear heights of less than 20 feet.

That space might have been state-of-the-art in the midcentury, but it is well below logistics tenant requirements in the 21st century.

The upshot of this shortage of modern warehouse/distribution space is a sizable opportunity to develop more space to meet the needs of e-commerce. Not all markets are well-positioned to do so, however.

"Warehouse development is a significant strategic tool, typically driven by population size, density and e-commerce penetration," CBRE Americas Leader of Industrial and Logistics Adam Mullen said.

"The goal in determining the best site for a warehouse or distribution center is market coverage for efficient and quick delivery to consumers," Mullen said.

"That means that certain markets will see a disproportionate share of large-scale, modern warehouse development opportunities, namely those within a few hours’ drive of major population centers and ports, and those with major transportation networks." 

Primary examples of those leading distribution markets are California’s Inland Empire, Pennsylvania’s I-78/I-81 corridor, Atlanta and Dallas, according to Mullen.

The Inland Empire, for one, already has an advantage in the race to serve the needs of e-commerce. CBRE data ranks it as having the youngest stock of industrial facilities in the nation: an average of 20 years.

The I-78/I-81 corridor, Atlanta and Dallas are likewise youngish, with industrial stock at an average age of 29 to 31 years, all below the national average of 34 years.

That said, even the older markets will see some opportunities to develop modern facilities.

"The opportunity in the older markets lies in infill development of both last-mile facilities and medium-sized distribution centers, possibly even multistory warehouse product. Northern New Jersey, Boston and Los Angeles are likely beneficiaries of these trends," Mullen said. 

Though one of the top markets by size, Northern New Jersey also boasts some of the oldest stock of warehouse/distribution facilities: an average of 57 years. Boston's stock averages 44 years old and Los Angeles' averages 39 years.

"Ultimately, as customers’ expectations grow, speed of delivery will continue to take priority above most, if not all, other factors for e-commerce orders," Mullen said. "To be fast with e-commerce fulfillment, companies have to be close to as much of their customer base as possible. And to be close, you need a place to process orders efficiently and effectively."