E-Commerce Spurring Warehouse and Distribution Construction

September 12, 2016

The pace of big-box warehouse growth is breaking both local and national records, in large part due to the dynamics of e-commerce. Although e-commerce makes up only about 10 percent of all U.S. sales, online transactions are growing at five times the pace of those at brick-and-mortar properties, according to James Breeze, national director of industrial research at Colliers Industrial.

The  Colliers 2016 Mid-Year Review and Outlook  reports a record number of big-box warehouse and e-commerce distribution facilities were delivered last year - about 60 million square feet at 98 projects.  

For the first two quarters of 2016, completed warehouse/distribution space has been increasing by more than 20 million square feet per quarter.  As of the end of Q2 this year, more than 62,177,642 square feet of new construction was underway in 1,908 buildings, and 11.8 percent increase.

In the five metro areas (Atlanta, Chicago, Dallas/Fort Worth, Greater LA, and New Jersey/Eastern Pennsylvania) that serve as hubs for e-commerce distribution, demand for more floor space is driving new construction, doubling from 2009 to 2015.

“This is happening because of the incredibly fast shift in demand for e-commerce; this has never happened before in the supply chain,” Breeze says. “Absorption continues to outpace new construction, and while some retailers are starting to be able to compete with Amazon, there are others that are just getting started on their e-commerce strategies. Companies are becoming more adept, and investment is shifting away from stores to the distribution centers.”

Amazon’s need for space is a good example of e-commerce space demands. The online retailer is set to open an 850,000-sq.-ft. fulfillment center in Monee, Ill.  Earlier this year, Amazon added  767,161 sq. ft. in Romeoville, Ill., more than 1 million sq. ft. in Forth Worth, Texas, another  810,000 sq. ft. in Carteret, N.J. , and 2.1 million sq. ft. in two buildings in San Bernardino and Eastvale, Calif.

Breeze says that e-commerce facilities are more labor intensive to build as companies owning or leasing the properties want higher ceilings, larger parking areas, and more comfortable work areas for employees who generally number far more than those needed for  less active storage warehouse centers.

Last week, Dallas-based Hillwood Investment, the real estate arm of the Perot companies, announced that it has purchased 85 acres in Joliet, Ill. to build a 1-million-sq.-ft. spec distribution center. “This property is one of eight 1-million-sq.-ft. distribution centers developed over the past 18 months,” said Don Schoenheider, senior vice president with Hillwood.

Breeze expects the growth in the big-box sector to continue as more companies embrace online sales strategies. For example, Macy’s, who had altered its supply chain to set up mini-warehouses at its stores, announced last month that it will close 100 stores and reconfigure distribution.