It’s business as un-usual in the world of e-commerce.
On one hand, when COVID-19 hit global supply chains, shipments flowing into the largest U.S. ports slowed considerably. Recent data comparing April 2020 to April 2019 volumes at the largest U.S. container ports demonstrates just how big of an impact closed factories and delayed orders had on the movement of goods. Except for Oakland, California, all markets reported a significant decline, with Oakland’s drop-off expected to appear in the May numbers.
On the other hand, stay-at-home orders resulted in an unprecedented ramp up of online shopping. In fact, the U.S. experienced what had previously been estimated as five years of e-commerce expansion in a span of three months, throwing previous growth projections out the window. This most definitely taxed supply chains, but for the most part, e-commerce players responded remarkably well. The ability for the supply chain to adapt to these rapidly changing buying patterns bodes well for consumers, as well as for the industrial real estate sector overall.
It is projected that as much as three-quarters of industrial leasing for the remainder of 2020 will be e-commerce-related. Discussions during the recent I.CON conference sponsored by NAIOP, the Commercial Real Estate Development Association, suggested that the massive acceleration to online shopping spurred by COVID-19 will not subside, but rather push approximately 40% of all retail sales online by 2025.
What can we expect as a result of this newfound velocity? Undoubtably, port volumes will rebound from their recent slump and return to more normal levels of activity. However, there is wide speculation about how much new e-commerce development will be required throughout the U.S. to facilitate the efficient movement of goods to the end consumer – and what types of facilities will be best suited to meet new demand.
E-commerce is evolving rapidly before our eyes, and it’s not the same old model we were comfortable with 10, five or even one year ago.
- Online grocery sales have skyrocketed, hitting a record $7.2 billion in June, and adding another level of complexity to e-commerce. There is intense focus on cold chain transport and swelling demand for freezer/cooler space.
- Last-mile delivery centers are popping up everywhere – not just in the most densely populated areas. Scarcity of desirable space is a growing concern.
- Reverse logistics is expanding, with approximately 30% of online sales being returned. Retailers must find ways to accommodate this backflow of goods and minimize the impact to the bottom line.
- Adapting typical industrial space – for example, to multistory warehouse use – presents new challenges, requirements and costs that must be weighed before a project begins.
- Reshoring efforts, such as those announced by Whirlpool, Caterpillar, and Stanley Black & Decker, will shift some segments of manufacturing and distribution back to the U.S. This will force occupiers and investors to rethink their e-commerce strategies.
There is still much to learn about the trends mentioned above, which at this moment makes the industrial sector challenging and exciting at the same time. It is an opportunity the commercial real estate industry welcomes, as this sector has kept market activity relatively robust over the past several months and will be at the forefront of economic recovery through 2020-21.
