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Record $70 Bil Forecast Online Returns Expected to Boost Demand in an Already Tight Industrial Market

12/29/20

This report provided by real estate services firm CBRE

Record e-commerce sales will drive more returns of goods bought online this holiday season than ever, stressing supply chains and increasing demand in the already tight industrial real estate sector, according to a new report from CBRE.

According to CBRE, e-commerce returns this season could total as much as $70.5 bil, a 73% increase from the previous five-year average. This increase can be attributed to a historic rise in e-commerce sales triggered by the COVID-19 pandemic.

CBRE’s forecast, based on National Retail Federation data, estimates online purchases this holiday season (November and December) will reach $234.9 bil, a year-over-year gain of 40%. With an average return rate of 30% for online purchases, it’s easy to see why the overall number of returns will jump significantly.

“As e-commerce has boomed, the rate of returns have also increased, so technology will continue to play an important role in helping companies manage this complex issue going forward,” said Ryan Sparks, first vice president at CBRE in San Diego. “San Diego is no different – we are seeing companies here rely on data-driven technology to make informed decisions on their real estate.”

Impact on Industrial and Logistics Real Estate

Optoro, a provider of returns technology and services for processing retail returns and CBRE’s partner for the report, estimates a reverse logistics supply chain requires, on average, up to 20% more space and labor capacity compared with forward logistics (the original order fulfillment process)—a conundrum given that industrial space is already incredibly tight:

• As of the third quarter, there were 22 U.S. markets with vacancy rates below the national average of 4.7%, according to CBRE.
• CBRE Economic Advisors estimates 1.5 bil sf of industrial space will be added in the U.S. in the next five years to meet growing demand.
• 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 msf of this space could be used to process returns in this five-year period.

Not all returns can be successfully discounted and put back in rotation. Optoro estimates that returns produce 5 bil pounds of waste in landfills annually.

“Retailers will have to meet this growing challenge in many ways,” commented John Morris, Executive Managing Director at CBRE. “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.”




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