Warehouses are creeping back to the center of cities

As brick and mortar retail suffers, e-commerce giants are buying up warehouses like hotcakes

Today's expression: Spread out
Explore more: Lesson #280
July 27, 2020:

While brick and mortar retail struggles through the pandemic, online shopping is surging. E-commerce giants are buying warehouses like they’re hotcakes, and there’s a new push to move fulfillment centers closer to cities. It’s a heated battle to provide the fastest home deliveries. Plus, the future of the office and what it means to “spread out.”

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Warehouses are creeping back to the center of the city

Lesson summary

Hi there, thanks for joining us for part two of our inquiry into how the buildings around us are being affected by COVID. I’m Jeff—self-confessed real estate professional, so thanks for indulging me on this lesson. JR is the producer, as always. And today’s full lesson can be found at PlainEnglish.com/280.

If you haven’t yet listened to number 279, you might want to do that now. That was part one. We will pick up where left off last time. The phrasal verb is “spread out” and we have a quote of the week about creativity.

Dying malls find new life as warehouses and offices

On Thursday, we talked about how the coronavirus crisis is affecting hotels and shopping malls. Today, we turn our attention to the other types of commercial real estate—namely offices and warehouses.

You’ll recall that shopping mall owners and hotel owners have been hit hard by a decline in travel and by retail tenants not paying their rent. The story with office is not quite as gloomy. Most office tenants are continuing to pay their rent, even if their employees are working from home. What’s more, office leases tend to be long: most have ten-year terms. This takes the pressure off owners of big office buildings in city centers—for the moment. But changes loom: the only thing we don’t know is what those changes will be.

Some companies have decided that they will let employees continue to work remotely forever. Others may decide that they don’t need employees in the office for eight hours a day, five days a week. They may decide a hybrid model works best for them. This could mean they need less space, but that they use their space in a smarter way—for teamwork and in-person meetings rather than for traditional workspace.

Still, there are some signs that many white-collar workers are tiring of working from home and are anxious to return to the office. When they do, they may want to spread out a bit. The trend in commercial office has been to pack more and more people into smaller and smaller spaces: that trend may halt, or even reverse direction as people return to the office.

Some high-profile companies have signed long-term office leases despite the quarantine, signaling their optimism about the future of the office. Uber, BP, and several law firms and insurance companies have signed big leases in London, Berlin, and other European capitals. An architect that designs office interiors had a good point when he said that companies can’t expect to attract good talent with a fast laptop and a stipend to convert a bedroom into an office. Eventually, good companies will need space to collaborate and work together.

Landlords, big employers, and architecture firms will be the leaders in determining what the future of the workplace looks like.

The one bright spot for commercial real estate is industrial. Warehouse space is on fire as e-commerce has surged. Amazon is gobbling up warehouse space as fast as landlords can provide it.

For years, industrial space has been creeping back toward the city center; that trend looks to accelerate. Warehouses used to be on the outskirts of town where land was cheap and where delivery trucks had easy access to large highways. Those still exist, but e-commerce companies like Amazon and Walmart are in a heated battle to make the fastest home deliveries as possible. That means they need storage space close to where people live. In March, when stocks (including darling tech stocks like Facebook) were being hammered, Amazon signed a massive lease for one million square feet of warehouse space in New York City itself. They are planning to open another 1.2 million square feet in Chicago. My city, by the way, Chicago, has more industrial space under development than at any time in its history.

As e-commerce firms increasingly look to get closer to where people live, they are naturally turning to empty shopping centers. Last week, we talked about the real possibility of big shopping malls dying after big-box anchor tenants close, taking smaller stores down with them. There’s even a term for it: zombie malls. These closed malls are a perfect way to inch closer to their customers. Shopping malls are already close to where people live and they have large open spaces.

A real estate brokerage found two dozen examples of dead American malls converted into warehouse space to serve e-commerce companies like Amazon. In Memphis, a closed Sam’s Club is now a Sam’s Club distribution center. In Ohio, two regional malls have been taken over by Amazon.

Not only dead malls, but living malls could be good candidates for e-commerce. A big warehouse firm bought an active shopping mall in the north of London, with an eye toward converting it to a fulfillment center when the existing leases expire. Another potential reuse of old shopping malls is office space. The Los Angeles mall used in the movie “Clueless” has been turned into office space for Google.

New Free Facebook Group for Listeners

I can definitely see the effects of the crisis as I drive around. I haven’t been to a shopping mall in a long time—I’m not much of a mallgoer in the best of times—but I can definitely see buildings for sale, shops closed, “for-lease” signs out front. There are some stores that had just opened and will probably never get off the ground. It’s too bad. But hopefully the crisis passes and something new can grow in that space.

Hey I wanted to tell you about our new Facebook group. It’s not that new; we’ve had it for a while. But I haven’t mentioned it yet here. So many of you have asked for a way to connect with other listeners and interact with the material we offer here. We have introduced the forums as part of Plain English Plus+ , but I also wanted to do something for free members and for everyone who is not (yet!) a member of Plain English Plus.

So that is the Facebook group. You can visit PlainEnglish.com/Facebook and it will redirect you to our group. We’ll be posting regularly and we invite you to post back and comment and connect with other listeners. PlainEnglish.com/Facebook is the link.

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Expression: Spread out