Make Room: Industrial Property is Hot

Why are shippers scrambling to convert industrial property?

The exploding demand for warehouse space for the “last mile” in e-commerce supply chains — combined with America’s chronic land shortage — has caused logistics companies to seek unorthodox solutions, making industry property a very hot commodity for 2019.

A new popular strategy among logistics providers is to convert dead retail spaces into mini-fulfillment centers — a cost-effective way to expand their distribution networks using facilities that are already strategically placed closed to customers’ houses.

Photo © Johnny Joo. Reprinted with permission.

As brick-and-mortar continues to decline, more stores and malls are going dark and the resulting commercial spaces are sitting empty and unused. And yet we’re seeing vacancy rates plunge on sizable industrial and commercial properties, as the industrial and logistics sectors — ever hungry for warehouse space — move in to snap up the empty real estate.

In a trend that’s likely to continue growing, Amazon and other logistics players are rapidly gobbling up the failed shopping malls, garages, multi-story warehouses, and even smaller residential and retail properties. The number and types of buildings being retrofitted are soaring, and rapidly being converted into distribution centers and logistics hubs.

E-commerce poses a major threat to existing retail real estate, but at the same time, is also increasing the demand for industrial space. Note the circular nature of the phenomenon: as retail’s center of gravity moves online, logistics providers like UPS and FedEx need more real estate devoted to strategic deployment of online orders. As e-commerce shipping becomes better, faster and smarter, even more store closures occur.

Turning a shuttered retail space into a state-of-the-art industrial complex was historically rare because of the difficulties involved, but the pressure for capacity has turned that tide. In the last few years, dozens of properties across the country that were once home to retailers — Walmarts and other big-box stores, malls, grocery stores, even movie theaters — are now being transformed into warehouses and supply chain centers.