After years of hyper growth, demand for industrial space, especially ecommerce fulfillment centers, will slow between now and 2023 as supply has caught up, according to a new report from the Deloitte Center for Financial Services.
“In the next five years, the annual demand growth rate will likely decline to a little below 0.9%—nearly one-half of 2018 levels,” Deloitte said in the report. “This is likely due to an influx of space becoming available in the market and the higher cost of capital.”
Deloitte said its model shows demand growth tapering as the availability rate of industrial space is projected to rise from 7% in 2018 to 10.3% percent in 2023. “For instance, from 2019 to 2020 an additional 510 million square feet of new industrial real estate space is expected to enter the market, outpacing the 421 million square feet of expected additional demand,” it said in the report.
Double-digit growth in ecommerce sales, a rise in business inventories and increasing fuel prices are expected to drive demand for an additional 850 million square feet of industrial space between now and 2023, Deloitte found, but there are headwinds. “Macroeconomic factors, tenant needs, last-mile delivery and rapid technology evolution (including automation and robotics) are likely to reshape demand and warehouse space design,” it said in the report.
Not only ecommerce sales but the growth of returns is driving space demand, Deloitte found, with customers three times more likely to return items bought online, and fulfillment centers needing 20% more space to handle reverse logistics than they do for outbound orders.
Other trends are dampening demand by increasing the availability of ecommerce fulfillment space, Deloitte said, including the rise of on-demand providers like Flexe, Flowspace and Darkstore, which tap unused capacity from property owners including 3PLs, so-called “adaptive reuse” of urban space for ecommerce fulfillment, including malls and office buildings, and the increasing use of retail space for ecommerce fulfillment.
You can read the entire report here.