Unlike many other segments of the economy, warehousing and distribution center (DC) development is not only withstanding the widespread economic impact of COVID-19, it’s thriving.
Fulfillment center space is the hottest it’s ever been. In fact, a number of companies can’t find space fast enough, and developers can’t build DCs quickly enough to meet the requirements and demands.
The shift to ecommerce is in part what created the need for bigger and more warehouses. Ecommerce has been the fastest-growing channel over the last decade, with the pandemic accelerating such shifts.
Recent reports indicate that ecommerce is expected to grow to a quarter of all retail sales by 2025. If that happens, per the reports, the U.S. will need an additional 330 million square feet of distribution space to handle it. Retailers, general wholesalers and third-party logistics (3PL) providers are seeking accommodation.
Growe is answering the call.
Who Is Growe?
Growe is a commercial real estate firm that specializes in representing 3PL companies on managing their real estate portfolios across North America. Growe intentionally goes digging for warehousing opportunities for its clients—like G&B Fulfillment—so that they continue to grow.
“We started Growe because we found a niche in the 3PL space,” said Summitt Hogue, founder/CEO at Growe. “We decided we were going to go after the 3PL space because they need help. They need somebody that’s going to be committed to them to not only get them the month-to-month deal but also the 10-year deal when they really want to take off.”
“We see it as a space that’s going to continue to expand as the world moves more to buying things online,” Hogue added.
Demand for warehouse space was already high before the pandemic, but it accelerated even more when stores temporarily closed and people staying home had little choice but to shop online for many items.
Because of the growth in ecommerce, vacancy rates for industrial properties are near an all-time low, while utilization is up and prices are at record levels. The high demand and relatively low vacancy rates pushed rents for industrial space to new highs. According to reports, asking rents skyrocketed in Q4 to a new record of $8.24 per square foot a year, 2.2% higher than in Q3 and up 8.3% from a year ago, which is the highest rate of annual growth on record.
What Does the Future of Warehousing Look Like?
Coming off the strongest quarter ever for leasing of warehouse space, the U.S. industrial real estate sector anticipates that strong demand for distribution at seaports, inland rail hubs and near airports will continue through 2021 and beyond.
Commercial real estate professionals like Hogue project that the demand will be driven by ecommerce fulfillment, an urgent need by retailers to keep more inventory on-hand due to supply chain uncertainties and growing volumes from 3PLs. Smaller shippers are unable to compete for space with Amazon and other large ecommerce retailers and thus turning to 3PLs for their warehousing needs. 3PLs can be more responsive and can get warehousing space up and running faster.
“It’s at a point now where it’s so hard for small businesses to keep growing,” Hogue said. “A lot of the small guys [looking for square footage] are getting gobbled up by the big guys.”
That’s when Hogue started working with G&B Fulfillment and others around the country that were coming across shippers that were trying to find a 3PL.
“We try to get in touch with as many of these brands as we can and then take them to the family-owned 3PLs; the ones that have one to 20 locations,” Hogue said. “We basically built our niche just focusing on companies like G&B Fulfillment, which is a prime example of somebody that we love to work with.
“Part of our business is trying to fill up their buildings and the other part of our business is going and getting them more space. It’s two businesses that feed each other, and it works really well as a true partnership because we can help them in so many ways.”