This Is the Unexpected Side Effect of Booming Online Sales

While some retailers are still struggling to navigate the digital landscape, others who do have a grasp on e-commerce are continuing to see sales on the rise. But an unexpected side effect to this digital boom has materialized: a shrinking number of available warehouse spaces and increasingly inundated U.S. distribution centers.

According to a U.S. Industrial & Logistics Figures report conducted by commercial real estate services firm CBRE, the overall industrial availability rate dropped to 7.1 percent in the third quarter — the 33rd consecutive quarterly decline and the lowest since 2000 (the longest span of time since CBRE began tracking data in 1988).

The growth of e-commerce, consumer spending and an overall strong U.S. economy are credited for this unprecedented demand for warehouses and distribution centers, which continues to outpace supply. The result: a logistical nightmare, especially now as retailers continue to ramp up inventory in anticipation of a busy holiday shopping season. Initial data shows that about 63 million square feet of industrial spaces were occupied in the third quarter, and in the past year, demand has exceeded supply by 35 million square feet.

“This slight widening of the supply-demand gap of late underscores the industrial sector’s late-cycle strength,” CBRE global chief economist Richard Barkham said in a statement. “Underlying economic conditions are solid. But there also is a strong pipeline of new construction underway, which likely will cause the gap to narrow again in the short to medium term.”

This shortage of warehouse space has driven up rents, with an increase of 1.73 percent in Q3 to $7.21 per square feet, an all-time high.

And on top of it all, imports at major retail container ports are expected to reach near-record levels this month in spite of newly implemented tariffs, according to the latest report by the National Retail Federation. October is forecasted to handle 1.87 million TEU (20-foot-equivalent units), up 4.3 percent from last month and the fifth month in a row to top last year’s record-breaking peak of 1.83 million TEU.

At this rate, retailers might have a real warehouse shortage crises on their hands. And as malls continue to find other uses for their abandoned storefronts (like housing the homeless or turning them into startup incubators) one option might be to transform them into distribution centers.

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