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?

About CNBC: From 'Wall Street' to 'Main Street' to award winning original documentaries and Reality TV series, CNBC has you covered. Experience special sneak peeks of your favorite shows, exclusive video and more.

Connect with CNBC News Online

#CNBC

Why Warehouses Are Taking Over The U.S.

[cstnfacu]

America went from being a coast to coast shopping mall, to a coast to coast warehouse.

[oxdhaoxt]

The sad part will be when these warehouse become 90% automated and all the people in those town are left with nothing

[SomeUserNameBlahBlah]

Instead of paving over farmland, they should buy old factories and tear them down then rebuild. Most of these warehouses will be abandoned in 50 years.

[UToobin]

I temped at a warehouse (twice) in the 2000's. Low pay, mandatory overtime, no climate control during the summer, dirty and dusty, poor safety protocols, a**hole management, clocked every minute, on your feet all day, physically demanding. Just as we're warehousing products, we're warehousing people. The future of non-college educated work is depressing, though I suppose it always was.

[SoapinTrucker]

I can't speak for others, but as a former truck driver of 28 years, I was extremely glad to see all the new warehouses being built, because the aged ones were/are a pain in the butt to get into, old docks, no where to park,

[jcarey]

What this video didn't address is that the Lehigh Valley and Northern Berks County have some of the best farmland in the country, if not the world (I know, Lancaster County, that's a bold statement right there...). Pennsylvania German settlers really knew how to spot great soils. Once that's paved over, it's gone and the breadbasket of the Eastern US is no more.
That's the most heartbreaking thing to see as I travel through that area. It's awful that farming can't ever compete with short-sighted development.

[codywright]

I witnessed this warehouse boom first hand as a civil engineering intern at Kimley Horn in Fort Worth Texas this summer. Practically every project I worked on was a massive industrial warehouse somewhere in Dallas Fort Worth. Absolutely nuts.

[bettyvanderhooven-schmaasc]

I just joined a "buy nothing" group. So tired of consumerism.

[industrialize]

This video is really well done. Bonafide experts were interviewed and some real challenges in the industry were identified. Considering the US industrial real estate market is comprised of over 20 billion sq ft and has an aggregate value of over $1.5 Trillion, I'm surprised it's taken this long for the industry to enter the spotlight.

[jtkm]

I have mixed feelings. These warehouses that have been taking over the farmland in southcentral PA, where I live. Yeah its disgusting a gray, yet at the same time, these warehouses have brought so many good jobs, and I myself am currently benefiting from this. I work at these warehouses. My final verdict, these warehouses are "mostly" good because they gave rust belt areas like mine, a second chance, and gave me and my friends good stable incomes.

[BenShutUp]

Old dude said, I’m cashing in and traveling before I kick the bucket.

[ubermenschen]

What is not said: as modern retail sales turn to e-Commerce which in turn drives demand for warehouse, the demand for traditional retail stores and shopping malls will decline. Essentially, these warehouses cannibalize retail floor space.

[Sacto]

Reason: a company called Amazon. They need warehouse space on an unprecedented scale, and are grabbing warehouse space as fast as possible. No wonder we're seeing major warehouse construction near railroad yards and even near airports.

[johniii]

Just use the closing malls for a lot of them. The enclosed mall is going away so relocate the space.

[Zepol]

Buy warehouses and lease them to companies

[CUMBICA]

When I hear warehouses I remember the fire that burned down an online retailer's big warehouse northside of Tokyo in 2017. 70, 000 square meters (or 750, 000 sq feet) in floor space packed with office supplies worth 200 million US bucks in retail value. It took 12 days to completely extinguish the fire.

[danielhockersmith]

Boomer complains about warehouses then quickly sells his land to warehouse company.

[calcrappie]

This is not industrial "production". These are jobs paid for in miles of empty store fronts, shopping malls and domestic manufacturing. So now we pave over farm land for the convenience of sitting at home and clicking a mouse.

[harrylerwill]

Supply chain disruptions impact JIT processes, so industry is reverting to CRP II modalities, which requires inputs be stored locally.

[FTE]

Warehouses are a necessary evil. One of the biggest issues is the truck traffic and no where for drivers to park to get proper rest and services. These towns want the tax revenue but expect drivers to disappear after loading or unloading.