The continuing rise of e-commerce has accelerated what Newmark calls “the other big-box boom.” Namely, it has increased the need for certain types of packaging, including corrugated boxes, which represent more than 80% of online-order packaging. That need is expected to intensify in the coming years, and with it a need for industrial space to support these operations.
“Nationally, nearly 407 billion square feet of corrugated product was churned out in 2020 as online orders spiked during the COVID-19 pandemic, and demand is likely to remain elevated,” writes Lisa DeNight, Newmark’s national director of industrial research. “Based on current space utilization of top corrugated occupiers, Newmark estimates that an extra 250,000 square feet of direct industrial real estate space for every additional 1.0 billion square feet of corrugated product could be needed to accommodate annual growth.”
In response to increased demand and to locate closer to clients, companies across the packaging industry are expanding their manufacturing and warehouse/distribution footprints, writes DeNight. These occupiers often have specific building requirements such as heavy power for manufacturing processes, along with access to rail, which is an economical mode for transporting bulky, low-cost materials.
“Markets with availability and developable land have supported greater packaging-industry expansion than supply-constrained coastal markets, where occupiers must weigh the cost and availability of real estate versus transportation costs,” she writes.
Over the past five years, leasing volume driven by the packaging industry has been 45% higher than the sector’s 20-year average. In addition, packaging firms have expanded their footprint through heightened merger and acquisition activity, which has increased over the same period with average deal volume 30% above the 20-year baseline for the sector.
Pandemic or no pandemic, packaging suppliers have served as a catalyst for millions of square feet of expansion over the past year and a half. Among the largest packaging-related deals of 2020 was the 1.1-million-square-foot lease Uline Corporation signed last August for Building 1 of Passport Industrial Park, a two-million-square-foot development by Trammell Crow Company in Irving, Texas.
DeNight notes that industrial expansion from packaging companies is expected to continue in the post-COVID-19 economy. Packaging industry growth is forecast at 3.5% annually over the next five years in response to increased demand from the consumer and production side alike.
Furthermore, industrial space requirements may evolve as the sector becomes more efficient: with increased focus on ESG (environmental, social, and governance) criteria, “stakeholders across the spectrum of the packaging supply chain are looking to be more sustainable, agile and cost-conscious,” she writes. “While the nature of packaging is in evolution, the fundamentals of producing and delivering packaging materials to clients will continue to be supported by industrial commercial real estate.”
Pictured: Passport Industrial Park in Irving, TX.