E-Commerce Tenants Continue to Lease Industrial Space as the Holiday Season Approaches

Article originally posted on National Real Estate Investor on October 9, 2020

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Anticipating a surge in online shopping during the holidays, e-commerce tenants are already prepared to handle the swell in orders, having locked in additional industrial space during the second and third quarters, according to Steve Schnur, executive vice president/COO at Indiana-based industrial REIT Duke Realty.

Online retail sales increased a whopping 30.1 percent during the first six months of the year, compared to the same period in 2019, from $266.84 billion to $347.84 billion, according to Digital Commerce 360 analysis by the U.S. Department of Commerce data.

Online shopping is expected to jump even more during the holidays, with software company Salesforce predicting that as much as 30 percent of all global retail sales will conducted online during the 2020 holiday season. A Statista survey found that nearly half of U.S. consumers plan to shop online during the period, reports Finch. What happens in the November election and whether there will be a new government stimulus package before the end of the year will also have an impact on online holiday sales, according to Pete Quinn, national director for industrial with real estate services firm Colliers International.

At the beginning of the pandemic this spring, Duke Realty had paused speculative construction projects to focus on build-to-suits because e-commerce companies that were seeking space, like Amazon and Walmart, were having difficulty finding the type of space they wanted to lease, says Schnur. But today, demand for industrial space is so strong, the company has restarted spec development and 60-65 percent of product in the pipeline is already pre-leased.

This year has been unpredictable for retailers trying to get a handle on the right inventory levels, according to James Breeze, senior director and global head of industrial and logistics research at real estate services firm CBRE. So, retail occupiers of industrial space have increased their footprints to accommodate more “safety stock” and avoid disruptions due to lack of inventory.

“We expect this to be a major driver for retailers, wholesalers and 3PLs in the coming year, as occupiers keep more inventories on hand,” says Breeze, noting that industrial leasing transactions at the end of August averaged 100,000 sq. ft.

The average vacancy rate for the U.S. currently sits at 4.7 percent—only 30 basis points above its all-time low, according to CBRE. That’s in spite of the fact that more than 82 million sq. ft. of new product has been delivered to the market. In the second quarter, there was 117 million sq. ft. in new industrial leasing activity—surpassing the 100-million-sq.-ft. market for the 18th consecutive quarter. Average rents grew by 2.1 percent.

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