Posted on April 14, 2020 · Posted in Industrial / Flex, Investments

Industrial real-estate operators expect the disruption of consumer supply chains caused by the coronavirus pandemic to drive a new surge in warehousing demand.

Warehouse developers now helping some retail and logistics customers secure additional storage space as lockdowns trigger an upheaval in consumer buying patterns believe the rapid adjustments will give way to longer-term changes in how companies manage their supply chains. That will likely include more robust e-commerce operations and more “safety stock” positioned around the country as businesses soften their lean-inventory strategies.

“There’s this move away from just-in-time inventory, so the tenants are getting fatter,” said Kevin McGowan, president of Allentown, Pa.-based McGowan Corporate Real Estate Advisors, which specializes in industrial real estate.

The market to store and position goods for distribution remains volatile, with business shutdowns curbing activity among some operators while others scramble for additional warehouse capacity.

Flexe Inc., which connects businesses to warehouses with space to share, is seeing a rush of demand from retailers and direct-to-consumer brands swamped by online orders for products like cleaning supplies, said Karl Siebrecht, the company’s chief executive.

“Merchants that have shut down bricks-and-mortar operations are also looking for overflow storage,” Mr. Siebrecht said, as consumer demand for other goods dries up. “There’s a lot of inventory that made its way across the ocean and needs a place to go…a steady flow of shoes and apparel and purses and ottomans.”

The upheaval comes as supply chains across the retail sector have strained under shortages of basic consumer goods during the pandemic. A rush by consumers to stockpile essentials like toilet paper and hand sanitizer has come as coronavirus restrictions have disrupted the flow of goods.

The restrictions aimed at slowing the spread of the novel coronavirus are wreaking havoc on the economy, and could dent the once-hot market for industrial space. But industry executives say consumer habits formed during this period will likely stick and lead to growing demand as companies reset their distribution strategies.

Demand could be particularly strong for temperature-controlled warehouse space to store food if consumers keep ordering groceries online, a market that has been booming as more people stay at home under social-distancing guidelines and have food delivered.

Over the next five years an additional 75 million to 100 million square feet of industrial freezer and cooler space will be needed to meet demand generated by online grocery sales, according to real-estate firm CBRE Group Inc.

“While e-commerce now accounts for about 3% of total U.S. grocery sales, there are huge growth prospects as housebound shoppers get used to ordering produce, meat and other perishables online,” said Matthew Walaszek, CBRE’s associate director of industrial and logistics research.

More than half of 1,000 U.S. consumers surveyed last month said they bought groceries online because of Covid-19, according to a poll by U.S.-Israeli warehouse automation provider Get Fabric Ltd., which does business as Fabric. One in five respondents said they did so for the first time.

Walmart Inc. generated nearly $900 million in online grocery sales last month, up 21% compared with February and nearly double the level of March 2019, according to data provider 1010data, which tracks credit- and debit-card sales.

Industrial property landlord Prologis Inc. expects the overall market for warehouse property to weaken as the economy weathers a coronavirus-driven recession, but the company says e-commerce growth in grocery and other categories should boost demand in the long run.

“There are a wider range of consumers shopping online, and a wider range of products for which they’re shopping,” said Chris Caton, Prologis’s head of global strategy and analytics. “We found a majority of our customers are going to be stable or even grow.”

 

Source: The Wall Street Journal

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