While the rise of e-commerce was far from a new trend that no one saw coming, last year's pandemic lockdowns put that situation into overdrive. Rather than having an opportunity to gradually acclimate to an increasing shift from in-person to online shopping, retailers found themselves clamoring to adjust to a marketplace that had changed dramatically almost overnight.
Some had already been heading in that direction long enough that they were able to pivot quickly, while others benefited from being deemed essential, but many retailers ultimately succumbed to declining sales. And if that wasn't enough, the retail worker exodus is yet another obstacle surviving brick-and-mortar retailers now face.
While these developments have been bad news for many retail investors, the amount of warehouse space required to provide storage, processing, and returns for so many online orders has led to an industrial real estate boom. And it turns out there's yet another reason why the e-commerce boom is boosting industrial real estate.
Something has to hold all that stuff
Commercial real estate services firm Newmark recently released a report revealing just how hot packaging is getting: In 2020, the industry produced almost 407 billion square feet of corrugated packaging (what we typically think of as cardboard boxes). Demand is expected to remain high, with the report predicting annual packaging industry growth of 3.5% per year for the next five years.
And again, this has been coming for a while. Over the past five years, leasing volume driven by the packaging industry has been 45% higher than the sector's 20-year average. All this increased volume is driving a need for more real estate.
"Across the packaging industry, companies are expanding their manufacturing and warehouse/distribution footprints to meet increased demand and locate closer to clients," the report says.
Newmark also indicates that markets with more available, developable land will be selected to host these new packaging warehouses going forward over more supply-constrained, expensive coastal markets.
But what about the environment?
The packaging industry is aware of growing consumer concern about the environmental impact of so much consumption and has been making moves to address those issues. But creating sustainable packaging can get more complex than you might expect, as increased recyclability and a low carbon footprint are sometimes at odds with one another.
Meanwhile, a start-up called Olive is looking to fill the sustainable packaging gap right now. Customers can order from different retailers through Olive, which will have everything shipped to its warehouse. Olive will then recycle the packaging from the different retailers and then consolidate and ship the complete order to the customer in its own reusable packaging, which the customer then ships back to Olive, either collapsed and empty if they're happy with their purchases or filled with returns for the company to handle.
The Millionacres bottom line
The e-commerce boom spurred by the pandemic shows no signs of slowing down anytime soon, and all that stuff consumers are ordering has to go in something before it can be shipped. Whether environmentally minded start-ups like Olive will be able to disrupt the packaging industry before the industry as a whole makes larger moves toward sustainability remains to be seen, but any significant impact there would probably be slow to manifest.
Of course, even if a company like Olive succeeds, they too will need plenty of warehouse space for receiving, processing, and shipping orders, and the items shipped to them to distribute to consumers will still need to first be packaged by the various retailers. That's why it's likely that an increased need for shipping materials, be they corrugated boxes or something a bit greener, will continue to positively impact the industrial real estate market for a long time to come.