Online retail sales surged over 40% in 2020 fueled by the Coronavirus pandemic. With overall easing of pandemic rules and society getting back to school, work, and leisure activities we are seeing a leveling off in online sales growth. Predictions for online sales growth are expected around 2-3% annually while brick and mortar are expected to surpass 4-5%. This may be the reason why Amazon has recently announced not only a slow down in its growth of distribution centers but also a clawback on its existing facilities. Subsequently, we can expect Amazon to bring upwards of 30,000,000 SF of Class A warehousing back to the market.
This should not negatively impact the industrial real estate market as strongly as one would expect. Demand remains strong from other warehouse users who up until recently struggled to secure sufficient square footage while competing against e-commerce and logistic giants. This demand will continue to fill existing and future pipeline warehousing space without the need to drive up lease rates to above market values. We can expect that lease rates for the foreseeable future will grow at a more tolerable 3-5%, versus the unsustainable 10% annual growth we have been seeing. Overall, this is a minor correction that may be long overdue.