Disappearing Warehouses? I Don't Think So.

Cyberspace Needs Real Space... It's not often that commercial real estate is the focus of a commercial on TV. So you gotta love the UPS commercial that shows three interior spaces -- a school, an office and a discotheque -- with a person saying, "Wow, this is cool space." To which the reply is, "Yeah, it used to be a warehouse." The message: "If you used UPS to ship your goods more efficiently, you wouldn't need all that (funky?) warehouse space." Really?

You wouldn't know it from reading the New York Times (Oct 30, 2000) article Bricks-and-Clicks World Needs Commercial Space. The article begins by describing the bottleneck to Kohl's web initiative, which is constrained -- not by bandwidth or server capacity -- but by the construction timetable for its new 525,000 square foot distribution center in Monroe, OH. "As the bricks-and-mortar retailers continue their inexorable march toward the virtual store, they are discovering that selling on the Web requires a lot more bricks and mortar." The article goes on to describe the expansion efforts of retailers like the Gap, Nordstrom, Home Depot, Kmart and Wal-Mart. And it quotes Hamid Moghadam, CEO of AMB, as saying, "We've bet close to $2 billion that retailers will want warehouses near their customers."

Actually real estate receives a double whammy because these same retailers need more office space to build the web component of their online strategies. Here's a good example: Wal-Mart will lease 140,000 square feet in Brisbane, CA, (near San Francisco) for Walmart.com, its online retail group. (San Francisco Business Times, Oct 27, 2000) That's enough space for at least 700 employees. By coincidence, on Oct 30 Walmart.com re-launched its web site -- for the third time. This highlights the advantages that industry incumbents have over pure-play dot-coms. They don't have to get it right the first time. So despite the gyrations of the NASDAQ, it sounds to me like real estate demand will remain strong as businesses nationwide executes their click-and-mortar strategies.

--Peter Pike