We all have seen articles over the past year asserting that the spectacular growth in e-commerce during the COVID-19 pandemic, coupled with previously forecasted organic growth, is driving a boom in industrial real estate, including warehouse and distribution center construction. The industrial real estate services firm CBRE has added some hard numbers to those projections.
E-commerce is expected to grow to represent a total of 26% of all retail sales by 2025 in the United States, creating the need for an additional 330 million sq. ft. of distribution space just to handle the increase in online ordering in that timeframe, CBRE believes.
That anticipated e-commerce-generated demand for distribution space represents 27% of the projected overall demand for industrial real estate in the U.S. through 2025, CBRE Econometric Advisors calculates. The broader category of industrial real estate includes warehouses for traditional retail distribution, manufacturing, R&D space and data centers.
CBRE calculates the incremental demand based on its estimate that every additional $1 billion of e-commerce sales requires 1 million sq. ft. of new distribution space. According to CBRE’s forecast—which is based on Euromonitor data for 2020—U.S. e-commerce sales are expected to increase $330 billion from 2020 to 2025.
The market research firm Statista is more optimistic in its forecasts, stating that while revenue from e-commerce amounted to $431.6 billion in 2020, its models estimate that by 2025, revenue will increase to $563.4 billion.
The U.S. Census Bureau has reported that U.S. retail e-commerce sales for the first quarter of 2021 totaled $215 billion on a seasonally adjusted basis, an increase of 7.7% from the fourth quarter of 2020. On a not adjusted basis, the estimate of U.S. retail e-commerce sales for the first quarter totaled $196.7 billion, a decrease of 16.7% from the fourth quarter of 2020.
According to different observers, e-commerce sales grew 39-44% last year. Others foresee a further decline from this year’s first quarter as more brick-and-mortar retail establishments reopen from the post-pandemic lockdowns and restricted operations, and people seek ways of entertaining themselves by leaving their homes.
Globally, e-commerce sales are forecast by CBRE to rise by $1.5 trillion during the 2020-2025 time period, requiring an additional 1.5 billion sq. ft. of warehouse/distribution space to accommodate this growth. The U.S. and Mainland China are the biggest e-commerce markets, accounting for 57% of global Internet sales.
“Distribution and supply chain networks will continue to be under pressure to meet demand at a time when industrial vacancy is at record low levels,” observes John Morris, executive managing director and leader of CBRE’s Americas Industrial & Logistics and Retail businesses. “As a result, a significant amount of new construction will be needed in the next few years just to keep pace with robust demand.”
According to the CBRE report, South Korea is forecast to have the world’s highest e-commerce penetration in 2025 at 43%. The U.S. will be one of the top 10 markets globally for e-commerce penetration in 2025. To forecast growth, CBRE says it looks at such drivers as each country’s percentage of urban population, debit and credit card use, the population’s digital skills and digital technology infrastructure.
“While there is a sizable construction pipeline in the U.S., much of that new space already is leased to meet the demand of the past few years,” explains James Breeze, senior director and global head of industrial & logistics research for CBRE.
“Moving forward, the challenge in many U.S. and global markets will be to produce enough new facilities to meet this rapidly expanding market,” he adds. “It’s important to bear in mind that e-commerce is only a portion of the overall demand for distribution facilities. Traditional retailers, third-party logistics companies and others will also be demand catalysts. If developers can’t build facilities fast enough, we could see rental rates push well beyond their current record highs.”
