The e-commerce market continues to drive the industrial warehouse market in the U.S. as warehouse operators snap up capacity whenever possible.
RPG, a developer in San Diego County in California, has acquired a 202,844-square-foot facility at 1 Viper Way in San Diego for $26.1 million. Cushman & Wakefield represented Stockbridge, a private equity real estate investment management firm, which sold the property. Cushman has been retained by RPG to handle project leasing.
RPG intends to redevelop the property and optimize it for e-commerce and distribution center users, as well as potential manufacturing. The firm will remove the mezzanine and add dock and grade-level doors to the front of the building and feature cross-dock loading with 28-foot clearance heights.
“1 Viper provided one of San Diego’s largest lease-up opportunities and was a rare and versatile opportunity enabling the ability to execute multiple lease-up strategies, including either as a single or multi-tenant facility,” said Aric Starck, vice chairman of Cushman. “The reposition opportunity uniquely positions 1 Viper to capitalize on the unmet demand for distribution and last mile requirements in San Diego with superior loading capabilities and great clear heights while also providing a significant discount to reproduction cost.”
The conversion of the property to handle e-commerce is part of a vast expansion of e-commerce warehouse capacity. E-commerce requires as much as three times the warehouse space as traditional brick-and-mortar warehousing. Real estate investment trust Prologis Inc. (NYSE: PLD) expects e-commerce to require an additional 125 million square feet of space each year through 2025 in the U.S. and Europe.
CBRE looked at the warehouse trends in its 2020 North American Big Box Review and Outlook. The company defines an industrial big-box facility as a warehouse or distribution center of 200,000 square feet or more.
“E-commerce retailers signed more deals in big-box facilities than ever before, while third-party logistics providers (3PLs) expanded in logistics hub markets to better serve their growing customer base,” the CBRE report said.
Transactions involving big box facilities increased in 2020 to 349.5 million square feet, up from 280 million square feet in 2019. The number of transactions dedicated to e-commerce only reached 27.1% in 2020.
There is also the expectation that many supply chains will look to operate with inventory levels that are 5% to 10% higher than normal in efforts to avoid the stockouts that were recently experienced, a recent Prologis report noted. The company sees higher inventories creating the need for 57 million to 114 million square feet of additional space annually over the five-year period.
Prologis’ report noted that millennials, which now make up 23% of the world’s population, are driving retail sales and therefore boosting logistics demand. Dual-income households and the expansion of internet access to more of the world’s population is also changing retail, the firm said.
“Consumer expectations have increased in a permanent way, favoring convenience, choice, reliability and immediacy. Naturally, the combination of new digital options and a desire for convenience have propelled the adoption of e-commerce,” the report explained.
“Taken together, this intensity of use generates substantial incremental demand as a greater proportion of retail goods are sold online. The forecasted share shift alone (holding sales constant) should drive the need for an incremental 125 million square feet (MSF) of logistics space or more per year through 2025 in the U.S. and Europe alone.”
Prologis Ventures is an investor in FreightWaves.