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Report: Don’t Assume that Onshoring will Boost CRE’s Warehouse Segment
A commonly thought belief is that the growing onshoring trend – in which manufacturers are pulling back from foreign locations and starting operations in the United States – will be a positive boost for industrial commercial real estate, especially warehouses.
But not so fast. A recent report issued by CBRE didn’t disagree that onshoring and less reliance on supply chains could be helpful. But it did warn that “through the lens of industrial real estate stakeholders, a more complex picture emerges.”
To analyze the impact of imports and exports on warehouse space requirements, CBRE relied on the Vector Error Correction Model (VECM) statistical method. The short-run mode dynamics supporting exports showed that:
- As soon as good are produced, they’re immediately moved to the ports for shipment, rather than being stored in a warehouse
- In the case of Just-in-Time (JIT) production, goods are produced on demand—and once again, are shipped to the port for exports
- Exports consist (typically) of bulk shipments of homogenous goods, which are quickly loaded and shipped without the need for warehousing
The situation changes under the long-run dynamics. After about a year and a half, demand for warehouse space for exports increases because of the following:
- Companies might choose to store buffer stock to manage uncertainties or delays in the supply chain, calling for more warehouse space
- Diversification of goods is also likely to increase as export volume grows – and this also could require more storage space
- If increased export demand outstrips production capacity, manufactures might need to produce and store goods in advance, which could drive up warehouse space demand
- Seasonality demand can mean companies increase their inventory at certain times of the year, requiring additional warehouse space
The takeaway from this report was that the impact of onshoring on warehouse demand is more cyclical than constant. An initial dip in absorption could be followed by increasing demand. As such, “stakeholders’ approach should aim for equilibrium,” the report said. “Their strategies need to balance the continual demand brought about by imports with the longer-term absorption generated by export activities.”
- ◦Lease
- ◦Economy
