Every time you make a purchase on Amazon or using another online retailer, you contribute to a real estate boom most people may not notice. “For every $1 billion of digital retail sales, shipping requirements gobble up more than 1.2 million square feet of warehouse space,” reported CBRE head of industrial research David Egan recently. He added, “We are seeing, on average, 50 million square feet of extra demand a year in the market than history says we should be seeing” and noted, “This has been going on now for almost six years.”
Dallas-Fort Worth Stands Out
One area of the country in which this boom is particularly notable is Dallas-Fort Worth, which is one of the largest warehouse development pipelines in the country. The nice thing about the warehouse boom for areas experiencing it at heightened levels is that it is somewhat insulated from broader economic swings. When people are in a savings mindset, they are more likely to buy online than in a big-box store. Furthermore, thanks to the overhead associated with brick-and-mortar retail, physical retail locations are likely to fold long before online retailers.
“We are going to see more and more space to support these sales [of shipping and distribution space] even if the broader economy goes down,” Egan predicted.
Chicago is Poised for a Warehouse Boom As Well
In a different report, CBRE also ranked cities nationwide on their levels of attractiveness for future warehouse development. On that list, Chicago, Illinois, ranked top thanks to a large gap between the rental rates that developers can expect to earn on newly built warehouses and the minimum rents needed to cover construction costs of those warehouses. Chicago had a 43% spread, followed closely by Atlanta, Georgia, with a 38% spread.
“Chicago is one of the largest markets in the country and is just really sustainable,” said CBRE senior vice president Whit Heitman. However, when CBRE ranked cities based on the amount of warehouse space currently under construction, Chicago ranked fifth and the Inland Empire region of Southern California ranked first.