bestof

Amazon, E-Commerce Drive Boom in Warehouse Construction

Just outside of Trenton, New Jersey, between interstates 195 and 95, the decline in brick-and-mortar retail and the explosion in online shopping and delivery are playing out on the same patch of dirt. 
In fall of 2020, the Shoppes at Hamilton, a Class A retail center in a prime location with popular brands such as Chico’s, Children’s Place, and Loft, was demolished to make way for a 171,000-square-foot warehouse that developers hope will attract an e-commerce tenant. 
"There's been very few projects that I know of where a shopping center has been demolished to make way for a warehouse," said Michael Nachamkin, the principal at Metrix Real Estate Services, the lead developer and investor on the project. 
While few projects are so symbolically neat, the trendlines are clear: warehouse construction is booming, and e-commerce, and Amazon specifically, are behind the building spree. 
"There's no end in sight," Nachamkin said. "I mean, it's years out, and the reason is because the market is continuing to grow rapidly. More and more people are shopping online."
Across the country, massive last-mile delivery centers are springing up on real estate where previously developers might have built office parks or shopping centers. Now the economics clearly favor warehouses, and the real estate industry is taking notice. 
Prior to the Great Recession, non-residential construction was dominated by retail and restaurants, according to Richard Branch, chief economist for Dodge Data & Analytics, which tracks construction across different industries.
In the decade since, as those categories declined, warehouse construction picked up steam, eventually surpassing retail, manufacturing, and office space in terms of square footage. 
"Over the past two years, that's been dialed up to 11," said Branch. "It's just about as large as education, so we're building almost as many warehouses as we are K-12 schools and colleges and universities. That's just a stunning turn of events." 

The Amazon Effect

Even before the COVID-19 pandemic, which has decimated retail and drove the adoption of online shopping, the warehouse construction boom was underway. 
The first big jump came between 2018 and 2019, when the amount of warehouse space under construction increased 20 percent from 299 million square feet to 358 million square feet, according to data from Dodge. It increased 5 and 6 percent in 2019 and 2020 respectively. 
"Well, there's a company called Amazon that has a lot to do with this," said Marc Wulfraat, president and founder of MWPVL, a research firm that tracks shipping and logistics. "They've been going through an unprecedented growth. We've never seen anything like this in history." 
Amazon added 96 million square feet of new space in 2020 and is on track to add at least 92 million more in 2021 with at least 313 new buildings, according to MWPVL research. 
"And that's understated," Wulfraat said. "Every week we're adding another five or six buildings that we didn't know about the week prior."
Because many warehouses on built on spec — as in developers build them and then seek out a tenant, rather than lining them up beforehand — it's unknown how many of the projects currently under construction will go to Amazon, but the e-commerce giant currently makes up roughly 10-12 percent of the total warehouse construction market, according to Branch. 
Outside of Amazon itself, the so-called "Amazon effect" is creating more demand for warehouses. Nachamkin said he's seeing more and more retailers build out their e-commerce operations with new warehouses that are designed specifically for deliveries. These new warehouses are often built to accommodate vans and straight trucks, as opposed to tractor-trailers because they're handling last-mile deliveries rather than large shipments. 
"Amazon was really the first e-commerce provider that basically grew out its infrastructure," Nachamkin said. "Then other retailers followed suit."

No End in Sight

Three months into 2021, more and bigger warehouses are on the way. 
"As of 20Q4 there are over 1,200 logistics (warehouse and distribution) properties under construction," wrote Juan Arias, senior consultant for CoStar Advisory Services, in an email. "This compares to an under construction average since 2010 of around 900 properties."
The research firm has also found that over 280 million square feet of space is under construction versus an average of over 152 million square feet since 2010. This equals an average property size of over 229,000 square feet today versus an average of 169,000 square feet since 2010. 
Around 55 percent of this space has not yet been claimed, meaning they were built on spec, but high demand is likely to gobble them up. 
"Despite these high levels of supply, we do expect most of this space to be absorbed over the next two years due to the strength of demand in the market," Arias wrote.
In some cases, these projects are changing the face of communities. In Fresno, Calif., for instance, a warehouse project got significant backlash from nearby residents, who were concerned about increased traffic and noise. This led to the City Council striking a deal with the developer to provide funding for needed improvements in the surrounding area. 
For local governments, the need for tax revenue is driving interest in whatever developments can get the funding to break ground, and right now the market is dictating warehouses
"Retail has been decimated, and a lot of the places that are out of business are not coming back," Nachamkin said. "If you get empty real estate, you have to develop it somehow."
close
We use cookies and similar technologies on this site to collect identifiers, such as IP address, and cookie and device IDs as described in our Privacy Policy.