Most Warehouses Inadequate For E-Commerce Despite New Construction

The need for warehouse construction is not likely to wane because most of the country’s warehouse stock is decades old and ill-suited for e-commerce uses, reported CBRE, Los Angeles.

“E-commerce has created demand for a new type of warehouse with different dimensions, locations and capabilities than what most of the existing U.S. supply offers,” said CBRE Global Head of Industrial and Logistics Research David Egan. “Given that only a small portion of the overall market is truly modernized, there is a strong case for new construction and redevelopment of outdated facilities in many markets.”

CBRE’s Old Storage: Warehouse Modernization in Early Stages report said while it may appear that developers have “raced” to build warehouses and distribution centers in recent years, the new supply’s impact on the U.S. warehouse market has been muted at best. Despite nearly 1 billion square feet of new construction over the past decade, the average age of warehouses rose from 26 years old to 34 years old during that span.

“That’s partly because that new construction amounts to only 11 percent of the entire 9.1 billion square foot inventory,” Egan said.

CBRE analyzed 56 major U.S. markets and found that most facilities built prior to the mid-2000s have limitations that preclude their use for e-commerce distribution, including low ceilings, small footprints, uneven floors and inadequate docking. “In contrast, modern facilities with larger footprints, high ceilings and close proximity to major population centers are in strong demand,” the report said, noting three quarters of U.S. warehouses that went under new leases in 2016 and 2017 were constructed within the past five years.

It would require 275 million square feet of warehouse and distribution center construction annually just to keep the industry’s average building age constant, the report said. Actual construction averaged just 100 million square feet annually in the past decade, including a peak of 183 million square feet last year.

The markets with the oldest and youngest average warehouse stock tends to fall along geographic lines, Egan said. Many of the oldest markets are in the Northeast, led by northern New Jersey with an average warehouse age of 57, Pittsburgh (56), Boston (44) and Philadelphia (44). The youngest markets are mainly in the west and south, led by California’s Inland Empire (20 years), Las Vegas (23), Phoenix (26) and Atlanta (29).