Louisville has been a cornerstone of the Midwest’s industrial landscape for decades, and as reflected throughout the past year, its positive momentum shows no sign of slowing. The Covid-19 pandemic has only further proven that companies across the country need resilient and efficient supply chains that are capable of housing and delivering a multitude of products to remain competitive.
Online shopping has increased tremendously as people continue to avoid in-person interaction to prevent the spread of the Covid-19 virus. As a result, eMarketer predicts American consumers will have spent an estimated $710 billion on e-commerce by the end of the year.
Because of this continued shift in consumer behavior, companies are racing to realign their warehouse and distribution space to keep up with demand. It will be impossible for both business-to-business and direct-to-consumer companies to stay competitive without having strategic distribution warehouses near their customers. Major developments over the past several years include Bourbon Logistics Center I & III (Core5), Medline and Grainger illustrate how valuable large floor plates can be when in the right market. Combined, these four distribution centers total over 4.3 million square feet of space.
As more companies buffer product inventory within their warehouses, large spaces like this are expected to reach an unprecedented level of demand. So, the moral of the story? When it comes to building distribution space, especially in Louisville, bigger is better. Here’s why.
1. Demand is exceeding supply.
Developers are racing to keep up with industrial demand in the Louisville market. Currently, the demand is specific to larger facilities, especially those over 750,000 square feet. In 2020, Louisville saw three projects of over 900,000 square feet, and two of these developments have already been fully leased.
For the last five years, net absorption has been keeping pace with deliveries. Right now, the industrial vacancy in the city stands at just over 5.0% —significantly lower than the national average of 10%, according to the Statista Research Department.
Adding to the pressure, significant planning, money, time and other valuable resources are needed to develop warehouse space of this magnitude. With the average warehouse taking 15 to 18 months to complete, there is no time to wait on solidifying your plan.
To get buildings online faster, some investors are developing facilities around 250,000 square feet with the option to expand the space later on. While this might sound ideal upfront, companies that take this route face the risk of the land or space no longer being available when they decide they are ready to expand.
In the Louisville market specifically, developable land is scarce. Additionally, the time, energy and effort associated with constructing a 300,000-square-foot facility are similar to the amount needed to develop a million-square-foot facility. Because of this, many developers are solely focused on larger projects in Louisville.
With the rapid pace that industrial space is currently being developed at, it’s safer to consider the long-term effects that your decision might have and secure maximum space or land so you can expand later down the road.
2. Retail is facing a new normal.
Industry veterans understand that even after the pandemic slows down and a vaccine is developed, retail will forever be changed. While in-store shopping may gradually return to more normal levels, COVID-19 has solidified consumers’ preference for the convenience of online shopping and now place a higher value on their personal time. In response, retailers are now forced to offer real-time solutions such as curbside pick-up and even same- or next-day delivery.
While foot traffic in brick-and-mortar stores has recently picked up, there is still a clear preference for online shopping and this trend is projected to be the “new normal” for retail.
3. Industrial demand goes beyond retail.
While retail and e-commerce take up an overwhelming majority of industrial space across the country, other key markets are increasing demand for industrial and warehouse space. As of September 2020, e-commerce leased 71.3 million square feet of space, while logistics, third-party logistics (3PLs), food and beverage, construction materials, and manufacturing leased nearly 170 million square feet.
As the demand for warehouse space continues to rise, especially in Midwest markets, competition for square footage and land for development will tighten, further showing why bigger is better when it comes to industrial space in Louisville.
Ultimately, when evaluating your real estate strategy and your long-term plans, it’s important to be cautious given the current economic climate. However, when it comes to certain industries that are booming, such as e-commerce, cold-storage and related industrial sectors, there are plenty of reasons to remain bullish.