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Posts tagged "online retail"

Home» Posts tagged "online retail"

COVID-19 Shines Spotlight on Value of E-Commerce and Industrial Real Estate

Posted on November 16, 2020 by Mike Kushner in Blog No Comments

As we approach the holiday season, and with holiday shopping already in full swing, it’s become a glaring truth that COVID-19 has divided retail companies into two distinct groups: those with functioning e-commerce businesses, and those without.

During the first 10 days of the holiday shopping season, U.S. consumers spent $21.7 billion online, a 21% year-over-year jump, according to Adobe Analytics. This likely stems from the fact that 63% of consumers are avoiding stores and buying more online, with health concerns due to the pandemic driving that decision for 81% of shoppers. Furthermore, U.S. consumers are poised to spend $198.73 billion with online retailers this holiday season. That would be a 43.3% year-over-year jump from $138.65 billion for the same November-December period in 2019.

What this means for businesses hoping to get in on some of these holiday shopping dollars is that they need to have an easy and efficient way for consumers to buy their products online and have them quickly delivered to their doorstep. For many businesses that don’t already have this infrastructure in place, they could sustain a huge blow this holiday season that may be too much to recover from. In contrast, businesses like Amazon and Walmart who are leading the charge in e-commerce are set to have a banner year when it comes to online holiday shopping.

Central PA Region Boasts Strong Market for Industrial Real Estate

In order to support a thriving e-commerce business, it requires ample and functional industrial real estate space to store and distribute massive amounts of inventory. Right here in Central Pennsylvania, Amazon and Walmart remain the most active industrial real estate leasees for Q3 2020. And it makes sense as to why. Amazon is by far the leader of the pack with nearly 13 million square feet of industrial space in this market alone. Coming in second is Walmart with 3 million square feet, and all other players in the field far behind that. This shows just how much of an e-commerce monster Amazon really is and how well prepared they are to take full advantage of this holiday season’s online retail.

And it’s no coincidence that the leading e-commerce businesses have chosen to take stock in the Central Pennsylvania region. The I-81 corridor is widely recognized as a hot spot for industrial real estate, warehousing, and distribution. With easy access to all the major markets and highways, it’s obvious why the Lehigh Valley ranks #7 and Harrisburg ranks #18 on the national list of net absorption as share of inventory. Additionally, Lehigh Valley’s rent growth came in at 4.9% year-over-year, making it among the top 20 cities in the nation.

Industrial Real Estate Trends and Tracking

When we look at the largest industrial leases in Pennsylvania, we can quickly identify the strength of the Central Pennsylvania region and the I-80 Corridor, much of which is occupied by e-commerce businesses.

What’s also interesting to see when mapped out is how the most concentrated industrial real estate markets tend to follow the major roadways, which is what fuels manufacturing, warehousing, and distribution. Quick and convenient access to these roadways is essential for e-commerce businesses who need to deliver product to customers quickly and efficiently.

And with one more graph, we can appreciate the peaks and valleys of constantly shifting vacancies in industrial real estate throughout the Central PA region, the most volatile being Lebanon and most steady being York.

Major Takeaways

The longer the pandemic drags on, the more likely that consumers stick to their new habits. Companies are racing to adapt. The stakes are high, especially for small businesses that were slow to embrace the e-commerce trend and are now desperately trying to catch up. Previously, many retailers might have said e-commerce is a relatively small part of the overall business, maybe 10%. Now that’s grown dramatically to 30% or 40% plus for many retailers and heading into the holiday season with most likely record-setting online sales, businesses who relied on foot-traffic are not likely to rise with the tide.

Even e-commerce giants can’t afford a misstep. This is a pivotal year for all retail and industrial businesses wh rely on manufacturing, storage, and distribution of product to bolster sales. Those who were not prepared for the major shift to online shopping this holiday season will feel it in their bottom line. For those who have not already adapted, the best time is and will always be ‘now.’

 

 

[Online Resources] Real Estate, amazon, businesses, central pa, central pennsylvania, Commercial Real Estate, consumerism, COVID, CRE, distribution, growth, industrial, investors, manufacturing, Mike Kushner, Omni Realty Group, online retail, online sales, online shopping, pa, pandemic, pennsylvania, products, shipping, shopping, space, walmart, warehouse

The Good, the Bad, and the Unbelievable: How the Pandemic Has Forever Changed Industrial Real Estate

Posted on October 13, 2020 by Mike Kushner in Blog, Industrial, Trends No Comments

Industrial real estate had been booming for the last five years, mostly propelled forward by e-commerce and changes in consumer behavior. If that wasn’t enough for industrial real estate owners to adapt to, a global pandemic hit and impacted the way just about everything worked previously. As we adjust to this new reality, there’s one looming question: can industrial success last in the age of COVID-19?

While every sector of the market has challenges right now, there’s good reason to think industrial will continue to thrive. But tenant demands will continue to shift under the mounting pressures of the pandemic. From understanding the current state of leasing activity and e-commerce to getting in front of emerging trends like grocery deliveries, there are a lot of things that need to be considered, monitored, and adjusted.

Here are the main areas impacted by COVID-19 and what industrial owners need to know to meet tenant demand now and into the future. Take a look!

Construction Delays

Construction delays caused by COVID-19 are becoming increasingly common and many industrial real estate owners are having trouble securing permits. That’s ultimately forcing a slowdown of expansion efforts, something that needs to be overcome considering the continued growth of e-commerce.

The industrial sector ended Q1 of this year at a high point with near record lows hovering below 6%, and rents growing 8.8% year-over-year while leasing velocity accelerated. There’s no doubt the pandemic has slowed markets down, but experts anticipate the trends supporting them to stay fundamentally intact.

That’s not to say the industrial sector isn’t experiencing headwinds. Across the market, industrial owners recognize that many tenants are still facing serious risks, and bankruptcies are expected. As a starting point to protecting themselves against risk, some owners are considering COVID-19 clauses in future leases to help them navigate these situations again in a possible future outbreak.

Accelerated E-commerce Growth

E-commerce is one of the few sectors of the market to actually benefit from COVID-19, and it’s well-positioned to lead the recovery. That’s according to JLL’s report COVID-19: Global Real Estate Implications, which said the pandemic will likely boost demand for manufacturing and logistics facilities that e-commerce needs to continue expanding. The report also said the pandemic will accelerate many existing trends, including the growth of online retail as more of the economy moves to online sales.

In our new economy, a retailer might not necessarily need a storefront to succeed anymore, but it does need a robust supply chain strategy. To meet the growth in demand, industrial owners in major metro areas will likely have to look further afield for suitable sites as demand outpaces local supply levels. This isn’t anything new for industrial markets, but the trend is only going to accelerate.

Increase in “Safety Stock”

It’s expected that e-commerce demand is growing given that people are looking for the safest and most convenient shopping options that allow for social distancing, but the pandemic has caused something else unexpected. Many occupiers of industrial spaces are planning a 3-5% increase in their safety stock levels to help safeguard against the rampant supply shortages experienced at the start of the pandemic. These measures will add additional demand for warehouse space to keep larger quantities of key items in storage.

Unprecedented Demand for Food Storage

While still a relatively foreign concept to much of America, COVID-19 is driving major demand growth for online grocery orders. In early May, CNBC reported that only 3-4% of grocery spending in the U.S. was online before the pandemic, but now online grocery orders have surged to account for between 10-15% of all grocery spending. While online grocery orders are expected to recede after the worst of the pandemic subsides, experts expect U.S. online grocery sales to stay between 5-10% moving forward.

This is a huge opportunity for industrial owners. But to really capitalize on the trend, owners need to invest big in cold storage. A challenge is that this niche is operationally complex and requires specialized knowledge to succeed. Because most first-generation facilities are designed, owned, and already in use by grocery and foodservice companies, second-generation spaces offer the biggest opportunities for industrial investors.

A Local Perspective

It comes as little to no surprise that Central Pennsylvania experienced a sharp drop-off in absorption, which is what we are seeing everywhere. According to CoStar, Harrisburg has a slight uptick in vacancies, but that’s not troubling because there was spec space coming online and leasing activity has slowed. See below for the local probability of leasing commercial space a few months from now, which helps to show how quickly properties are likely to lease in the region moving forward.

It’s also worth noting that there is no negative absorption in Harrisburg through 2020. This is a positive sign for the local commercial real estate market because it means major tenants have not left, or if they did leave, the vacated space was instantly filled. That’s not normally much of a win, but in Coronatimes is a big deal.

 

And then there’s construction. Specifically, in Central PA there has not been a surge in construction in the region, but there are still millions that broke ground after the pandemic began, which testifies to the level of confidence in the local shipping market because most elsewhere construction has flatlined.

Looking Ahead

The industrial real estate market has been a remarkable success story both in Central Pennsylvania and beyond. And while the near future is likely to carry its fair share of challenges as the market faces tenant bankruptcies and construction delays, this sector is well-positioned to emerge from the pandemic less unscathed than others in the commercial real estate industry. Owners and investors who successfully navigate these challenges while getting ahead of evolving tenant demands, like grocery delivery and cold storage, will be the strongest moving forward.

[Online Resources] Real Estate, camp hill, carlisle, central pennsylvania, challenges, Commercial Real Estate, covi, covid-19 pandemic, CRE, development, Economy, growth, harribsurg, hershey, hummelstown, impact, industrial real estate, industrial space, lancaster, market, mechanicsburg, Mike Kushner, Omni Realty Group, online retail, real estate investing, retail ecommerce, storage, trends, warehouse, warehousing distribution, york

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