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Existing Warehouses No Match for E-commerce Demands

With e-commerce sales providing one of the few bright spots at retail and consumers showing no signs of online shopping fatigue, fulfillment is a top concern—and area for innovation.

From the first mile to the last, stores are examining and reconfiguring how they get goods from point A to point B, including employing robots, engineering floating drone launch pads and transforming brick-and-mortar floor space to do double duty.

To feed the need, new warehouses are going up across the country, but not nearly fast enough. According to commercial real estate services firm CBRE Group, today’s picking, packing and shipping needs far outstrip the capabilities of existing facilities.

“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 David Egan, CBRE global head of industrial and logistics research. “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portion of the overall market is truly modernized, there is a strong case for new construction and redevelopment of outdated facilities in many markets.”

In the 56 major markets the firm examined, it uncovered low ceilings, cramped spaces, uneven floors and inadequate docking in U.S. warehouses built before the mid-2000s. The conclusion? All of these issues make them insufficient for supplying a modern e-commerce business.

As a result, companies looking for warehouse space are passing up these aging facilities. CBRE found that 75 percent of new leases between 2016 and 2017 were signed on buildings that are at most five years old.

The 1 billion square feet of new construction over the past decade, however, only makes up 11 percent of all existing warehouse space. Nearly an equal amount of space is in faciilties that are more than 50 years old. In fact, the average age of warehouses rose from 26-years-old to 34 years in the last decade.

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To simply keep the average age from creeping up any more, the pace of new construction would have to almost triple, according to the report. Construction has averaged 100 million square feet a year, and it would need to hit 275 million annually.

CBRE stated the oldest warehouses can be found along the East Coast, from Boston to Philadelphia, while the newest dot the West and South in California, Las Vegas and Phoenix.

The newer spaces can typically be found in areas with vast amounts of land located near major markets.

“Given the low share of modern warehouse space and the rise of e-commerce, there’s ample opportunity to develop new warehouses and rebuild physically obsolete ones in the best infill locations,” the report noted.