Wednesday, 6 July, 2022
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Warehouse business catches fire, boosted by pandemic, e-commerce

Warehouse business catches fire, boosted by pandemic, e-commerce

NEW YORK: The rise of e-commerce and the logistical nightmare created by the Covid-19 pandemic have caused a surge in demand for warehouse space in the United States, and big investment funds have taken note.

"It's been a tremendous struggle to find the appropriate location for clients," said Michael Schipper of Blau & Berg, a commercial real estate specialist in New Jersey and New York, reports AFP.

Available space has been dwindling steadily for a year and a half, and the vacancy rate is now 3.4 percent, although developers delivered 90 million square feet of new warehouse space in the first three months of the year, according to commercial real estate firm Jones Lang LaSalle. Demand is so strong that purchase prices have tripled or quadrupled in just six years in northern New Jersey.

Nationally, average rental costs have jumped 22 percent in two years, according to analytics firm Beroe.

"Demand for space from logistics and distribution activities driven by e-commerce industry" is the major factor in the US market, according to Beroe, which notes that demand has exceeded supply for 18 months.

In addition, unlike traditional storage sites, fulfilling online orders requires technologically advanced warehouses, said Mark Manduca, chief investment officer at GXO, a supply chain management company.

Beroe said this equipment, which requires massive investments, allows firms "to improve warehouse efficiency and to speed up warehouse activities to meet the same-day delivery demands."

Pioneered by Amazon, other retailers were obliged to scramble to catch up to the new standard of immediate delivery set by the Seattle-based online sales giant.

In recent years, a lot of those companies have been rapidly ramping up their own e-commerce efforts, Manduca said.

"Those are the people that are really driving that demand for last mile warehousing," he said. The demands of instant delivery have forced many sellers to acquire multiple storage locations to get closer to customers, especially in urban areas where real estate was already expensive.

The coronavirus pandemic accelerated that trend, as e-commerce sales surged by 56 percent between early 2020 and early 2022.

Another pandemic effect was the logistical mess caused by Covid-lockdowns and health restrictions.

That revealed storage capacity "in the wrong place, supply chain issues, and more recently, inventory rebuilds that have kind of almost overshot to a certain degree," Manduca said.