Warehouse space is in demand — and Hughes Marino knows just what that means for the market and its clientele.
The San Diego-based commercial development services firm specializes in matching clients across many sectors with their ideal workspaces. And that includes servicing its roster of industrial customers with warehouse needs from coast to coast. In North Carolina’s Raleigh-Durham region, for example — Hughes Marino opened a brand-new location there in September — local reports note that available warehouse inventory in that area is hard to come by and will only get more difficult as the months roll on.
In San Diego, where Hughes Marino is headquartered, a spokesperson points out that the area, which is also teeming with competition for life science and office space alike, is among the nation’s most expensive for warehouse space.
“It is widely accepted that the commercial real estate market, as a whole, has taken a hit during COVID-19,” explains Managing Director Tucker Hughes. “Restaurants and brick-and-mortar shops have faced the worst of it, as retail properties everywhere shut down. Office buildings have not fared much better as most companies sent their employees to work from home.
“The drop in demand for those two property types has dominated headlines across the country, but all the while, a quiet surge in demand has occurred in the industrial real estate market … the industrial real estate market has been incredibly resilient through the COVID-19 pandemic.”
E-Commerce Continues to Gobble Up Warehouse Square Footage
The pandemic-spurred boom of e-commerce is largely to blame for the rush on storage facilities.
Multinational logistics real estate investment trust Prologis reports that not only is the U.S. experiencing record lows in availability, but if the current supply and demand trend continues, all inventory could be completely depleted in just over a year.
The COVID-19 pandemic prompted a frenzy of online shopping, and that has led many retailers to cope with the challenge of finding a place to store items.
CNBC reports that Target’s and Walmart’s warehouses are overflowing with excess inventory, and many warehouses throughout the nation are operating with less than 1% vacancy — and the tight market continues to lead businesses to snatch up more warehouse space than in previous years.
“Think about Amazon,” explains a Hughes Marino spokesperson. “They’ve gobbled up everything they’ve could — but so has everyone else. When they need distribution, [they need] big, big buildings to bring stuff in from all over the world and then redistribute it out so that your Amazon van can get their stuff to you in your house — that’s what’s happening.”
Bloomberg.com says developers can’t build fast enough. Coldwell Banker Richard Ellis Group projects for each $1 billion increase in online sales, it will require an additional 1 million square feet of warehouse space.
The pandemic has also led to construction delays as building supplies get costlier and trickier to obtain.
“Raw land is not the only facet of the industrial real estate market experiencing a jump in pricing,” says Hughes Marino Senior Vice President Mike Paleo. “We have also seen the cost of raw materials and construction labor increase as well. Costs for concrete and steel have doubled and even tripled over the past couple years, and construction delays due to supply chain issues are causing havoc on initial estimates.”
Warehouse Automation Is Hot New Trend for Commercial Clients, Says Hughes Marino
Meanwhile, warehouse developers are looking to the tech world as warehouse automation has been brought into play to balance more post-pandemic production challenges. Warehouse owners will also invest in several material handling equipment which will help improve their business’ productivity.
In its Warehouse Automation 2021 investigation, Interact Analysis reveals that warehouse automation revenues are slated to jump from $29 billion in 2020 to nearly $70 billion in 2025, growing at a compound annual growth rate of 18% during the forecast period. Despite fixed automation solutions, such as conveyors, predicted to reach double-digit growth during this period, all eyes are on mobile robots to significantly bolster the market.
Warehouse developers are now utilizing robotics to optimize operations, says centuryconveyor.com. Some of the upgrades include 5G connectivity adaption, warehouse distribution drones, and climbable pick robots. Centuryconveyor.com emphasizes that flexibility will continue to be a key component of procuring warehouse space this year.
“I worry for those owners who don’t do it,” Erik Nieves, CEO and co-founder of Plus One Robotics, told The New York Times about warehouse owners who aren’t harnessing the technology. “Even today, a lot of warehouses are just racks, a cart, and a clipboard. They’re just not going to be able to keep up,” added Nieves.
Time Will Tell if Warehouse Market Cools
The New York Times is reporting that, eventually, inflation could play a role in warehouse demand slowing down, especially as the Federal Reserve threatens to raise interest rates and nervous consumers tighten their belts.
Amazon recently raised eyebrows when it announced it would sublease up to 30 million square feet of warehouse space in May. Industry analysts are wondering if other Fortune 500s will soon follow suit.
Still, Hughes Marino’s team members say they will continue to keep a close eye on where the warehouse space market is headed. Companies could ultimately need less space if consumers begin funneling less money into the e-commerce industry. Hughes Marino says it will also look at office space needs and demands and how the life science sector will play a role in acquiring commercial space.
“It’s going to be interesting to see what happens,” says a Hughes Marino spokesperson. “The multiples, the forecasting, the optimism, I think, is going to just kind of get ratcheted down a little bit. I still think things are good, but it could change quickly.”