Weiss: “The battle for space within the better-located central submarkets will continue to be in high demand and short supply.”
SAN DIEGO—CoStar reports the prospective 20,000-square-foot-or-larger distribution space availability rate here is 8.5%, and but readily available space may not be desirable for e-commerce companies, Lee & Associates associate Alex Weiss tells GlobeSt.com. We spoke with Weiss about how important this space is and whether there is cause for concern regarding supply in the San Diego market.
GlobeSt.com: How important is e-commerce to retail sales, in your view?
Weiss: At this point, there is really no end in sight to the growth and potential of online sales. The graph below tracks estimated quarterly US retail e-commerce sales as a percentage of total quarterly retail sales. Using this graph, it’s easy to see that e-commerce retail sales as a percentage of total retail sales is trending upward. It would not be a stretch to assume that in the near future, we will see 10% of all retail sales happening online through computers or cell phones instead of in traditional brick-and-mortar stores.
***Chart courtesy of Lee & Associates
GlobeSt.com: What impact is this having on the industrial sector of CRE?
Weiss: Since 2007, the popularization and growth of online sales have put supply-chain and logistics professionals to the test in their ability to ensure delivery at the doorsteps of the consumer within minimal time. As these companies grow through continued demand, they incur an aboslute requirement for real estate locations along their supply and delivery trail. From the big-box warehouse in the “first mile” of distribution down to the urba- market warehouse at the “last mile” delivery point, real estate locations must be considered and acquired for each warehouse drop-off point.
GlobeSt.com: Is there sufficient warehousing to support the year-over-year growth in online sales?
Weiss: On a national basis, availability of real estate that caters to logistics has been playing catch-up and is only now seeing a cushion of future deliveries near 170 million square feet, according to CoStar Group. To put that into perspective, 177 million square feet of logistics space was absorbed in 2016 and, because of pent-up demand, the market is poised to see more solid absorption numbers in coming years. Over the past few years, developers have been busy creating enough warehouse square footage to support the infrustruture of e-commerce.
GlobeSt.com: How does this compare to distribution companies in San Diego explicitly?
Weiss: According to CoStar’s data, prospective tenants with a requirement for a 20,000-square-feet-or-larger distribution space in San Diego County are facing an availability rate of 8.5% (more than 4 million square feet of available space). Additionally, 350,000 square feet of new construction will soon be available, as well as other projects currently in the pipeline from developers such as Murphy Development, IPT and RAF Pacifica. However, the space that is readily available may not be desireable for e-commerce companies. Many of the available new consutruction projects, yielding 28- to 32-foot-clear height ceilings, extensive glass line, multiple dock and great truck turning radius, are located on the outskirts of the county. Many of the last-mile-delivery warehouse product located in the central parts of the county (i.e., Kearny Mesa & Miramar) suffers from outdated buildings with extremely limited availability and a heafty price tag.
GlobeSt.com: What does this say about San Diego’s ability to meet demand for this type of space?
Weiss: San Diego is poised and ready for the growth of e-commerce, especialy those who can locate in the northern and southern parts of the county. The battle for space within the better-located central submarkets will continue to be in high demand and short supply.
