As E-Commerce Industrial Leasing Activity Picks Up Across Bay Area, Long-Term Impact Yet To Be Seen

While retail struggles to adapt to changing consumer habits with the rise of e-commerce, the industrial segment is benefiting from that shift. Among the large deals in Bay Area industrial over the last few years, a number are coming from retail distribution, especially in the Central Valley where there is space to build and lease large warehouses.

“You’ve got this e-commerce wave,” Black Creek Group Vice President Steve Young said during Bisnow’s Bay Area Industrial and Logistics Summit in late October. “Everyone has seen it and felt it, but it’s just really at the beginning stages.”

Of Black Creek Group's more than 15M SF portfolio across the country, 15% to 20% is made up of e-commerce related companies, Young said. The company is in the process of doubling its Northern California footprint with 3M SF of industrial in the works across eight projects.

The e-commerce footprint is likely much larger if leasing activity considers the companies that work with e-commerce indirectly, he said. That may be a logistics company that works for Amazon in a specific location, for example. 

E-commerce demand along with demand from logistics and a rise of advanced manufacturing are all combining to make industrial among the hottest real estate segments this late in the cycle.

Nationally, industrial has reported 33 consecutive quarters of positive net absorption and the lowest vacancy rates since 2000, Young said.

“The market dynamics couldn’t be better, and I think that’s why everyone continues to push forward on all their developments,” Young said.

Colliers International Executive Managing Director Michael Goldstein said since 2016 there have been 29 new buildings of 100K SF or greater with 17 built on spec and 12 build-to-suit in the Central Valley. 

Of the tenants to occupy these buildings, 10 were retail distribution, most of which had some kind of e-commerce component, Goldstein said. The other top deals included five third-party logistics deals, four auto deals and four tech deals. The remaining deals were made up of food distribution, building materials, paper packaging, trucking and transportation, medical distribution and others, he said.

Ridgeline Partners regional partner Steve Arthur said within the last 18 months his company has done 3.7M SF of deals nationally. Of the deals, 1.8M SF, or 40% of the space leased, was to three consumer appliance companies, Arthur said.

Ridgeline Partners also completed a large Amazon deal, four deals with third-party logistics companies, two with construction materials companies and another with a manufacturer, Arthur said.

Even buildings accommodating small manufacturers have seen strong demand. At 150 Hooper's The Manufacturing Foundry, which opened in October, small manufacturers have been taking up as little as 40 SF to 50 SF up to 1K SF, SFMade Manager of Real Estate Gina Falsetto said.

“There is a lot of demand for that space,” Falsetto said. “I think a lot of what drives people is looking for low rents.”

Falsetto said many of the manufacturers in San Francisco are in the food and beverage and apparel industries. While the building doesn’t come with parking, Falesetto said these manufacturers want easy access for trucks. 

“A lot of our folks … do sell a lot over the internet and need truck traffic to come and go very easily,” she said.