By Joshua Burd
With e-commerce sales and returns expected to hit record levels this holiday season, demand for industrial space is only slated to grow amid the need for reverse logistics space.
That’s according to a new report by CBRE, which projects that online returns could total as much as $70.5 billion this season. The figure would represent a 73 percent increase from the previous five-year average, creating additional stress on supply chains and a logistics sector that is already undersupplied in major markets.
The increase, of course, can be attributed to a historic rise in e-commerce sales triggered by the COVID-19 pandemic.
“Online returns continue to be a challenge and this year reverse logistics operations could be stressed like never before,” said John Morris, Industrial & Logistics and Retail Leader for CBRE. “With fewer in-store sales this holiday season, retailers will have to shift much of their focus to returns processing and their distribution networks in order to recoup as much value as possible.”
CBRE’s forecast, based on National Retail Federation data, estimates online purchases in November and December will reach $234.9 billion, a year-over-year gain of 40 percent, according to the report. That will translate to added returns, the firm said, noting that online purchases have an average return rate of 30 percent.
It will also translate to additional need for warehouse space to handle those returns, CBRE said. The real estate services firm collaborated on the report with Optoro, a provider of returns technology and services for processing retail returns, which estimates that a reverse logistics supply chain requires an average of up to 20 percent more space and labor capacity compared with forward logistics.
That presents a challenge for undersupplied markets across the country. As of the third quarter, CBRE said there were 22 U.S. markets with vacancy rates below the national average of 4.7 percent, adding that developers are slated to deliver 1.5 billion square feet of industrial space in the next five years to meet growing demand.
The report also said many companies that currently occupy second-generation space are expected to upgrade to these newly constructed buildings, which will allow reverse logistics occupiers to lease a greater portion of Class B space. As much as 400 million square feet of this space could be used to process returns over the five-year period.
Third-party logistics firms also figure to play a role in processing returns, as major retailers use them to free up premium space for forward logistics, CBRE said. That means 3PLs will continue to account for large chunks of demand in the market.
The firm noted that not all returns can be successfully discounted and put back in rotation, with Optoro estimating that returns produce 5 billion pounds of waste in landfills annually.
“Retailers will have to meet this growing challenge in many ways,” Morris said. “More space will be required for distribution networks. However, cutting down on the overall return rate should be a paramount goal going forward. Technologies such as virtual sizing and augmented reality can help provide more accurate product assessments, allowing consumers to make more informed decisions and reduce returns. Innovations like this will help retailers limit their losses and cut product waste — a win-win for everyone.”