Pandemic Disrupts Supply Chain and Creates More Industrial Demand

Travel restrictions due to the COVID-19 pandemic have severely impacted the supply chain for the foreseeable future. With some estimates showing that the coronavirus will be part of life for years to come, businesses are quickly adapting business strategy to move closer to consumers. According to research from CBRE, the disruption in the supply chain will create demand for 400 million to 500 million square feet of industrial space.

“It’s important to think through the human element that is involved in handling supply chains throughout the entire process,” Kurt Strasmann, executive managing director of CBRE’s Orange County and Inland Empire operations, tells GlobeSt.com. “Now think about social distancing and the handling of materials with new safety protocols. Less people means operations will be less efficient initially.  I am certain, over time the process will normalize but many dramatic changes throughout the entire process have led to major disruptions across the entire supply chain process, from raw supplies to manufacturing to transportation to warehousing to delivery of the end product to the end consumer.”

Changes to the supply chain are a big upset for the ecommerce and industrial markets. In recent years, the supply chain has become a well-oiled machine, but now, retailers need to find new ways to get goods to consumers. “Given the disruptions and in many cases the lack of real time product available to consumers, retailers are rethinking their inventory levels,” says Strasmann. “Pre-COVID, the supply chain process was exceptionally efficient and designed for just-in-time delivery and availability of product to minimize inventory levels and therefore the cost of warehousing the product. Inventory levels were kept to a minimum, which saved enormous cost for the retailer.”

However, transportation disruptions have created a need for more onsite inventory or inventory close to population centers. The change is already happening. “Many retailers have indicated they are looking to increase inventory levels by 5% to minimize disruptions,” says Strasmann. “Running these metrics nationally, this could potentially equate into the need for an additional 400 million to 500 million square feet of space to accommodate additional inventory levels.”

While retailers’ strategy has shifted, the geographic trends are the same old story. Urban areas with dense populations are in the highest need of more industrial space. Often, those markets are already running a deficit.  “Southern California is a perfect example with 20 million plus consumers living within a 70-mile radius,” says Strasmann. “The ability for a retailer to be able to deliver their product to the consumer faster is a competitive edge, thus infill markets are exceptionally well positioned.”