Transwestern released its analysis of a decade of warehouse demand and then trying to understand its future. A story of a decade comes out immediately in a succinct summation:
“Since the end of the Global Financial Crisis in 2009, industrial real estate has been the most consistent asset class, due largely to the growth of e-commerce. Occupancy growth has outpaced delivery of new inventory in 10 of the past 12 years, and as of mid-year 2022, tenants have absorbed nearly 4.7 billion square feet (BSF) of industrial space in the U.S. during that timeframe, outpacing the 3.5 BSF of completed industrial real estate development.”
That is a lot of warehouse space, and still many have been pointing out that there is still not enough in many places. The amount of growth in some places has been astonishing. Chicago, New York, Los Angeles, Dallas, and Atlanta started with at least 575 million square feet of supply each in 2010. Of this group, Dallas had the greatest growth with more than 35% increase in warehouse inventory growth to mid-2022. The additions among these five ran from 51 million square feet to 246 million square feet. Houston and Riverside-San Bernardino, California each added at least 180 million square feet and grew respectively 36.2% and 44.5%.
A big catalyst has been e-commerce, as Transwestern points out. “Retailers moved from a just-in-time model to a “just-in-case” model, expanding their industrial real estate footprints and stocking up on inventory,” the report says.
However, it also says, “As brick-and-mortar stores reopened, digital sales cooled, but consumer behavior has shifted permanently, and these new strategies and applications create a solid base upon which to build,” which isn’t quite the case. There was a huge jump in e-commerce as a percentage of all retail, but the figures show something slightly different. After the big jump up, activity started to move back down and by now e-commerce as a percentage sits about where pre-pandemic trends would have put it.
Transwestern does discuss how to determine the potential for more warehouse need and uses a figure it calls WPQ, or warehouse population quotient—dividing total warehouse square footage in an area by the total population there.
It’s an interesting concept, and one that makes some sense in the long run. But in the more immediate future, there still seems a good chance of a recession and the idea of a Fed-engineered “soft landing” that slows the economy without a jarring stop begins to look like wishful thinking. And there are also more complications in the theory, like one area served in part by another.
