As e-commerce businesses gear up to capture the next wave of growth, many are encountering an unexpected obstacle: rising warehouse rents and increasing vacancy rates. This isn’t mere speculation—it’s a tangible challenge industrial real estate may face in coming years. A recent Deloitte study suggests that despite e-commerce’s continued expansion, industrial property growth may fail to keep pace, potentially even facing downward pressure. What’s driving this disconnect, and how can businesses adapt?
I. Hidden Risks Behind E-Commerce Growth: Four Challenges for Industrial Real Estate
The e-commerce boom has fueled strong demand for warehouses and distribution centers in recent years. Between 2014 and 2018, the market absorbed a net 14 billion square feet of space—enough to accommodate two cities the size of Atlanta or Salt Lake City. However, Deloitte identifies four factors threatening future industrial real estate growth:
- Market oversupply: A flood of industrial projects has outpaced demand growth, driving vacancy rates higher and limiting rent increases.
- Intensifying competition: More players entering the sector are compressing profit margins.
- Rising interest rates: The Federal Reserve’s tightening monetary policy increases financing costs, dampening investment appetite.
- Higher capital costs: Escalating land, construction material, and labor expenses further squeeze profitability.
II. Deloitte Forecast: Slowing Demand Growth Ahead
Deloitte’s U.S. economic team projects:
- Industrial space demand will reach 14.8 billion square feet by 2023—a significant volume, but with markedly slower growth.
- Double-digit e-commerce sales growth remains the primary demand driver.
- However, rising vacancies and capital costs will temper growth, particularly as U.S. economic expansion is expected to moderate by 2020.
John D’Angelo, Deloitte Consulting managing director and U.S. real estate sector leader, notes: “Our research doesn’t suggest long-term demand decline for industrial properties. But analysis indicates supply is catching up with demand, while economic softening and improved space utilization may cause demand to contract in the near-to-medium term.”
III. E-Commerce’s Double-Edged Sword: The Reverse Logistics Surge
While e-commerce drives industrial demand, it also creates new challenges—particularly in reverse logistics (return processing). Studies show online purchases have triple the return rates of brick-and-mortar sales, requiring e-tailers to allocate 20% more space for returns.
Thomas Boykin, Deloitte’s supply chain specialist leader, explains: “With e-commerce growing 15% annually, retailers are finding that managing returns through forward logistics channels hampers sales growth. Many are establishing dedicated reverse logistics networks—creating additional demand for warehouse space.”
IV. On-Demand Warehousing Emerges as Urban Solution
The report highlights how platforms like Flexe and Flowspace are aggregating underutilized industrial space to meet seasonal needs—offering flexible, cost-efficient alternatives, especially in urban markets.
Boykin adds: “E-commerce customers increasingly expect same-day or even same-hour delivery in cities. Meeting these expectations within tight urban footprints is driving demand for micro-fulfillment centers—whether shared on-demand facilities or dedicated retailer spaces.”
V. Strategic Responses: Navigating the New Landscape
To adapt, businesses should consider:
- Supply chain optimization: Improve inventory management and logistics efficiency to reduce space needs.
- On-demand warehousing: Leverage flexible space solutions to lower fixed costs.
- Automation investments: Deploy technology to boost productivity and offset labor expenses.
- Urban logistics focus: Establish last-mile distribution hubs to meet delivery expectations.
- Prudent capital allocation: Carefully assess market conditions before expanding industrial footprints.
While e-commerce will continue propelling industrial real estate, companies must stay attuned to market shifts. The coming years will present both challenges and opportunities—with success favoring those who embrace innovation, efficiency, and strategic agility.