Increased Demand for Warehouse Space and Labor Created by COVID-19 Could be a Long-Term Trend

Article originally posted on National Real Estate Investor on March 30, 2020

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As non-essential businesses are forced to close doors, some retail and e-commerce firms are ramping up hiring and operations in order to meet a surge in demand for necessities and home deliveries.

“There’s certainly good news and bad news happening in retail right now. We know that the bulking goods, the discount warehouses, the dollar stores, grocery stores are all doing very well. Most of those are national credit tenants, so if a tenant in your shopping center happens to be oriented towards value retail, or discount retail, or grocery, you should be pretty safe.” says Naveen Jaggi, president of retail advisory services at real estate services firm JLL.

Drug chain CVS is looking to fill a total of 50,000 full-time, part-time and temporary positions nationwide, including store associates, home delivery drivers, distribution center employees and customer service professionals. 7-Eleven expects to hire up to 20,000 new store employees to meet increased demand amid the coronavirus outbreak. Dollar General is looking to add up to 50,000 employees to its workforce by the end of April, though the company said it anticipates most of its new roles will be temporary.

To ensure inventory levels are adequate to quickly meet demand, retailers in demand, such as grocery and discount stores, will insist vendors keep higher amounts of merchandise in stock, thus increasing the demand for warehouse space. Increasing demand for goods bought online, especially food, will also fuel the need for distribution facilities at a pace that’s higher than the market has seen previously, according to a CBRE report.

“When you look at some of the tenants that are increasing employment in their distribution centers, a lot of these tenants have been very aggressively trying to pursue labor even before we entered times of uncertainty,” says Chris Zubel, senior managing director at CBRE. “Generally, we believe a lot of those employees are not seasonal and are not necessarily because of COVID-19. If you look at large e-commerce companies, those are very labor-intensive operations and they have been looking for an increases supply of labor for quite a while, so we do not think that those hires are directly correlated to coronavirus.”

E-commerce sales took up around 15 percent of total retail sales in 2019, according to CBRE data. That is expected to jump to 39 percent by 2030. The shifted market dynamics produced by the coronavirus pandemic is likely to accelerate that growth, according to Zubel. The “e-commerce percentage of retail sales could increase even quicker than what we originally projected, especially in grocery and different consumer goods. We think that what is currently going on with coronavirus may actually accelerate the percentage of retail sales that are online.”

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