CBRE says the US needs more warehouses to handle record returns this holiday and in years to come.

With the record number of returns expected to return to retailers this holiday season and in the coming years, the United States will need more warehouse space to process them, according to a new report.

Consumers are expected to return $ 70.5 billion in holiday purchases to companies this year, commercial real estate company CBRE predicted on Monday. This will put additional strain on supply chains that are already operating at peak performance around the clock to accommodate the surge in digital orders.

CBRE said the projected 73% growth from the five-year average is largely due to an increase in online purchases. E-commerce sales tend to have a much higher return, up to 30%, than products purchased in stores. For example, people who shop for clothes online may order two or three sizes of clothes to determine which one works best and then ship back.

“One thing we often overlook is what happens when your shirt is returned,” said Matt Walaszek, director of industry research and logistics at CBRE, during a phone call to the media on Monday. "This creates a lot of problems and costs for retailers."

The move to the Internet, along with increased income, has big implications for the commercial real estate industry. CBRE said up to 400 million square feet of additional warehouse space could be required over the next five years just to handle returns, citing the need for both retailers and third-party shipping providers like UPS and FedEx to have more space. for storing incoming and outgoing packets.

CBRE predicts that as e-commerce sales account for the majority of total retail sales, the US will need an additional 1.5 billion square feet of industrial space over the next five years.

But the company warned that in the country's 22 industrial markets as of the third quarter, vacancy rates were below the national average, which means it may have to build more warehouse space from scratch.

Some have suggested that developers use empty retail space and turn it into logistics, but this is not always the best way. This is fraught with obstacles, including the need to rezone the land for new commercial uses. In addition, according to a separate report from Barclays, turning a gated mall into an e-commerce warehouse could reduce property costs by 60% to 90%.

E-commerce sales are expected to break new records this holiday season, with the US already seeing record growth in online sales over Thanksgiving, Black Friday and Cyber ​​Monday, according to data from Adobe Analytics. The coronavirus pandemic has pushed more people to avoid crowded stores and shop safely from their sofas on their smartphones.

Shipping companies are working on a solution to the surge problem. UPS reportedly told its drivers on Cyber ​​Monday to stop picking up packages from some of the nation's largest retailers after the companies completed the capacity allocation set by the shipping company.

Retailers and shipping companies are also likely gearing up for January 2, which is expected to be the busiest day for returns.

As companies run out of warehouse space - more and more retailers are forced to use the back of their stores to fulfill online orders - they will also face the cost burden of record returns. CBRE said the average cost to return a product could be up to 59% of the original selling price.

Bulky items such as furniture and exercise equipment are more expensive to return. And the longer the clothes are waiting to be returned and returned to the shelf, the more they are depreciated.

This year, investors ditched stocks in shopping malls such as Simon Property Group and Macerich and opted for warehouse owners and other industrial property investment funds, looking at the space as a growth opportunity.

Simon, which has a market value of $ 29.4 billion, has plunged nearly 40% since January, while Macerich shares have dropped nearly 55% over the same period, bringing its market capitalization to $ 1.9 billion.

Meanwhile, landlord Amazon Prologis is up more than 9% since the beginning of the year, and Duke Realty is up more than 10% since January. Prologis has a market value of $ 72.2 billion and Duke at $ 14.3 billion.

Source: www.cnbc.com