Retailers fuel a warehouse boom to keep up with Amazon

Washington / Bloomberg

The first thing online clothing reseller ThredUp did after clinching a new round of funding last year? Hunt for strategic warehouse space to get the goods to its customers as fast as possible. Amazon.com has spoiled them for anything less.
Within six months, ThredUp’s chief executive officer, James Reinhart, had signed leases on two additional warehouses. The newest facility, outside Atlanta, is now being filled with inventory. The 150,000-square-foot space is ThredUp’s gateway to the southeastern US, an operations hub where the secondhand clothes are received, inspected, sorted, stored on racks, and then packaged and shipped out the back door.
The new need for speed means retailers need more warehouses in more locations. Early on, ThredUp had only one warehouse, in California.
“It took forever to get stuff to the East Coast,” said Reinhart, 37. “It used to suck for that customer.”
Over the past year, prime warehouse rents are up 9.9 percent across the US and up by double-digit amounts in some large urban areas, according to a recent report. In some cities, surging demand has helped set off a speculative-building boom unlike anything in recent memory. In the first three months of the year, warehouse developers in the Chicago area broke ground on more speculative projects than in any quarter during the past two decades, according to Ryan Bain, a vice president at CBRE Group. There are currently 28 warehouse users in the market for 18 million square feet of space, triple the available supply, Bain said.
E-commerce alone is responsible for 20 percent of the current demand, according to Eric Frankel, an analyst at Green Street Advisors, helping to drive the spike in construction despite retail sales growth that has been slower than in previous economic expansions. Space close to population centers has become an especially hot commodity as startups compete for space with such shippers as FedEx and traditional retailers like Macy’s pursue the dream of same-day delivery.
Much of the warehouse craze is a reaction to a single player. Amazon has built a massive network of distribution centers as the muscle behind its reeducation of the American consumer. Shoppers have gotten used to short shipping times when ordering from the retail giant’s vast inventory of goods, forcing traditional retailers alike to build out online platforms and the capability to ship to consumers directly from brick-and-mortar stores.
“For the past 30 years, supply chains have been cost centers,” said Karl Siebrecht, chief executive of Flexe, a three-year-old company that styles itself the Airbnb of warehouse space. “Amazon came in and turned supply chains into a growth weapon. Now the whole retail industry is trying to keep up.”
The dynamic has helped turn a mundane corner of real estate into a hot property.
Amid the growth, a new model of the modern warehouse has emerged. In decades past, when distribution centers were used to ship pallets of boxes to brick-and-mortar stores, ceilings topped out at around 24 feet. Go back further and the standard warehouse was a brick building near a seaport or railyard, the kind of structure developers are currently
remodeling as startup office spaces and luxury lofts.