Why Warehouses Are Taking Over The U.S.

The U.S. is facing a warehouse shortage, with 1 billion square feet of new industrial space needed by 2025 to keep up with demand, according to commercial real estate services company JLL. More e-commerce activity and faster delivery is driving up demand and shifting local economies, like in the Lehigh Valley region of Pennsylvania. Now, open land is scarce, forcing real estate developers to find unconventional spots, like a scuba diving center, if they want to keep building.

For every Cyber Monday purchase, there is a warehouse employee packing up those soon-to-be presents.

The big online shopping holiday comes amid a warehouse shortage across the United States as distribution center vacancy rates are at all-time lows. Nearly 96% of existing industrial space is in use, according to commercial real estate services company JLL.

The U.S. may need an additional 1 billion square feet of new industrial space by 2025 to keep up with demand, JLL estimates.

“The industry is effectively sold out through the next year,” Chris Caton, managing director of global strategy and analytics at Prologis, told CNBC.

Rents are at all-time highs and pre-leasing rates have skyrocketed, which is when warehouses are leased before construction is even complete.

“The leasing volume is almost triple in some cases to what’s being built every year,” Mehtab Randhawa, senior director of industrial research for the Americas at JLL, told CNBC.

For example, another nearly 190 million square feet of warehousing space was under construction in North America during 2020, and more than 43% of the buildings were pre-leased, according to CBRE.

This demand is driven by retailers beefing up e-commerce operations amid the online shopping boom, and investing in faster delivery thanks to consumer expectations. Retailers are also securing more storage space in the U.S. to mitigate the impact of future supply chain shocks, like those caused by the coronavirus pandemic.

Plus, e-commerce and logistics take up three times as much space as brick-and-mortar retail.

The expansion of warehousing has shifted local economies, like in the Lehigh Valley of Pennsylvania.

The rapid growth has created controversy over land use because the warehouse boom is tightening the supply of land.

“Our folks ... are very upset about the warehouses, and they’re very upset about the truck traffic that it’s creating,” Northampton County Executive Lamont McClure told CNBC.

That’s pushing industrial developers to get creative and find more unconventional spots, like a Lehigh Valley aqua park and scuba diving center if they want to keep building.

Lehigh Valley native Stuart Schooley told CNBC that he and some friends tried to stop the construction of the first warehouse on their street.

“We realized we couldn’t stop it ... [and it] just started a progression of one warehouse after the other. We were the last property,” Schooley, owner of Dutch Springs, a diving center and aqua park in the Lehigh Valley, told CNBC.

Now, Schooley is selling the land so he and his wife Jane can retire.

Real estate developer Trammell Crow is purchasing the property and looking to build two warehouses on the land.

“We used to be quite welcome, and the worm has definitely turned, especially in places like the Lehigh Valley, where I think people feel like when is enough, enough?” Andrew Mele, managing director in Trammell Crow’s Northeast metro division, told CNBC.

So, what do all these warehouses mean for American consumers and business people from Wall Street to Main Street?

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Why Warehouses Are Taking Over The U.S.