As the U.S. economy restarts, adjustments to business supply chains will increase the demand for warehouse space. The downward trend in inventory-to-sales ratios since the early 1990s could reverse as manufacturers, wholesalers and retailers store materials and products closer to manufacturing centers and consumers.
Additionally, businesses may create more domestic supply chains as they re-shore or near-shore production. According to CBRE Research, a 5% increase in business inventories1 requires an additional 400 million to 500 million sq. ft. of warehouse space. Markets with convenient access to seaports may offer very limited space options. This likely will benefit inland hub markets, including the Inland Empire, Atlanta, Pennsylvania I-78/81 Corridor, Memphis, FL I-4 Corridor, Greenville and Central Valley, CA.
1 Business inventories are a measure of the total value of goods held by manufacturers, wholesalers and retailers.
Figure 1: U.S. Occupied Warehouse & Business Inventories
Source: U.S. Census Bureau, Federal Reserve Bank of St. Louis, CBRE Research. Data extracted May 2020.
The rising use of e-commerce is expected to create additional warehouse demand as consumers continue social distancing even after states and cities reopen their economies. Established e-commerce hubs at major transportation centers should see strong fundamentals as many occupiers recalibrate their supply chains and build automation and efficiencies into their distribution networks. Super-regional distribution markets, such as Chicago and Dallas/Ft. Worth, appear particularly well positioned because of their central locations. Warehouse projects already under construction in these markets (Figure 2) can provide space to accommodate both increased inventories and expanded e-commerce supply chains for goods stored stateside.
Figure 2: Top Markets for Under-Construction Inventory, Q1 2020
Source: CBRE Research, Q1 2020.
The COVID-19 crisis has underscored the fragility of just-in-time (JIT) production networks, which historically have involved very intricate global supply chains in which goods often go back and forth across international borders many times using many different transportation modes. These JIT systems are now susceptible to closed manufacturing facilities, ports and borders due to the COVID-19 crisis. A March survey by the Institute for Supply Management found that nearly 75% of business respondents have experienced supply chain disruptions and more than 80% believe they will in the future. As a result, many businesses are planning major restructuring of their supply chain processes.
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