Our increasing demand to buy gadgets, groceries and other goods online is actually driving up the price of land on which to store those items.
Two-day shipping has helped double warehouse land prices
E-commerce companies need to locate their distribution warehouses as close to their customers as possible.
Rani Molla was a senior correspondent at Vox and has been focusing her reporting on the future of work. She has covered business and technology for more than a decade — often in charts — including at Bloomberg and the Wall Street Journal.
That’s because in order to ship goods to customers within a day or two — a time frame popularized by the likes of Amazon that has now become expected — e-commerce companies need to locate their distribution warehouses as close to their customers as possible.
Industrially zoned land, especially near cities, is already hard to come by. And new construction has consistently been unable to meet demand, though it’s starting to catch up.
All of this has led the average cost of land for large warehouses to double last year to over $100,000 an acre, from about $50,000 in 2016, according to data from real estate firm CBRE. The cost of land for smaller warehouses in or near cities — what’s used for last-mile or same-day delivery — rose to more than $250,000 an acre, up 25 percent from 2016 to 2017.
Rental prices for industrial buildings have followed suit.
One solution to avoiding high land costs is to repurpose vacant malls and retail centers — industrial buildings usually located near population centers — as warehouses, according to David Egan, CBRE’s global head of industrial and logistics research. While that process has begun, it has yet to happen in earnest, he said.
Consumers may also have to pay more for the luxury of speedy delivery. E-commerce companies subsidize a lot of shipping costs in hopes of growing their customer base, but eventually those costs could move to consumers.
Egan doesn’t think industrial land prices will go down anytime soon. For one, the economy is doing well, meaning people are buying more goods, and online retailers, in turn, need more space to store them.
For another, many retailers have yet to fully build out their online operations — a necessity for retail these days.
This article originally appeared on Recode.net.
