Retailers Chomp at the Bit to Acquire Last-Mile Space

The COVID-19 pandemic has fed an explosive demand for warehouse and industrial space to meet rising e-commerce demands from consumers, and that space is getting harder to come by.

Just as major U.S. ports in Los Angeles and Long Beach, California, are congested, so too are warehouses where goods are moved. Industrial properties have surged in value as retailers and other industries compete for limited space. The lack of availability for warehouse space in some parts of the country has led Amazon to retrofit empty malls. In 2020, retailers snapped up more warehouse space than ever thanks to the skyrocketing demand for online delivery.

Retailers are hungry for space that’s close to highly populated areas that can be a point of fulfillment to easily load online orders for their final delivery destination. That last-mile delivery space is scarce, particularly around major cities where more retailers are pushing for one- and two-hour deliveries, The Wall Street Journal reported. 

The demand is backed by data––more than half of U.S. industrial leasing involved users looking for last-mile delivery facilities of 100,000-square-feet or less. Hiring of light-truck drivers in the U.S. has increased 15% since 2019, while the four New York boroughs outside of Manhattan have seen a 24 % increase, according to data from Jones Lang LaSalle, a real estate firm.

The demand is also fueling higher rent prices, with industrial rents rising 7.1% from 2020, while vacancy dipped to a new low of 4.3%, WSJ reported.

However, retailers aren’t the only ones going after these valuable properties. Developers are also eager to snap up industrial space for housing and hotels. Some dormant shopping malls have even been eyed as solutions to affordable housing needs in California. 

The huge demand has retailers and companies involved in infrastructure looking down the road another 10 years to build up what will be needed in addition to meeting today’s needs.

“The pandemic advanced us 10 years in the e-commerce business model,” Bret Jordan, president of the northwest region for Ryan Companies, told the WSJ. “So really, we’re trying to respond to conditions that we were expecting to show up in 2030.”