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When consumers order items through the plethora of e-commerce services now operating around the world, it can almost feel like magic. Press a button online, and a seemingly infinite selection of products will materialize at one’s doorstep, sometimes on the same day. The process is so seamless, we often forget that it requires a massive web of infrastructure to support it. This has led to increasing demand for warehouse space.
Large warehouses are typically used by businesses such as manufacturers, wholesale distributors, transportation companies, and big retailers. But the growth of e-commerce services such as Amazon has led to increased demand for warehouse space and other types of industrial real estate. That poses a potential threat for small businesses that must compete with bigger and wealthier bidders for a dwindling supply of square footage, particularly if they aren’t in the e-commerce industry themselves. On the flip side, this boom in demand could present an opportunity for the same small businesses that have extra space they could lease or sell.
Warehouse Rents Rise as Demand Soars
The demand for e-commerce services has had a significant impact on real estate prices, which helps explain warehouse space demand increasing and the need for suitable industrial land. Another reason behind soaring warehouse rents is the fact that e-commerce operations usually require three times more space than a traditional brick-and-mortar retailer would need.
According to commercial real estate firm CBRE, the largest parcels of industrial land now sell for around $100,000 per acre, twice as much as they did a year ago. For smaller, more numerous industrial plots close to metropolitan areas, prices have risen by $50,000 in the last year to an average of $250,000 per acre, according to CBRE research.
Challenges and Solutions for Warehouse Space
This obviously poses problems for small businesses that need warehouse space or land zoned for industrial use. Short-term loans to cover additional outlays for temporary or permanent space offer one solution to warehouse space demand increasing.
At the same time, other companies could use this spike in demand for land to their advantage. The New York Times reported that developers are finding success transforming land parcels used for outdated or obsolete businesses—particularly shopping malls—into distribution centers. That could make for an attractive offer for any land owner sitting on a large amount of unused, dilapidated property. Construction companies or wholesale distributors might also find ways to lease out some of their space and services to commercial tenants as a way to supplement their income.
Diversifying revenue is a key driver of long-term business growth, but it’s not an option that’s within reach for everyone. Using small-business financing to capitalize on an opportunity or simply supplement cash flow during peak periods makes for an ideal solution when time is of the essence and money is getting tight.
