Cardboard Demand is Driving Industrial Real Estate Expansion

Cardboard Demand is Driving Industrial Real Estate Expansion

The COVID-19 pandemic has served as a catalyst for the growing e-commerce sector (McKinsey).

Over the past 18 months, e-commerce firms have seen revenues rise by 95%, representing $26.7 trillion in additional revenue (UN).

As consumers continue to rely more heavily on e-commerce, the demand for packaging has also increased.

This is particularly true for corrugated cardboard demand.

Lightweight, affordable, and containing 60% less embodied CO2 (DS Smith), in 2020 corrugated cardboard was used to ship over 80% of online orders in the US (Newmark).

To meet demand, US manufacturers produced 407 billion square feet of corrugated cardboard, a 17 billion increase on the 390 billion square feet produced in 2018 and 2019 (Newmark).

To put this into perspective, corrugated cardboard production in 2020 was enough to cover a landmass equivalent to the size of New Jersey, Connecticut, and part of New York.

According to Mark Russo, Associate Director at Newmark, industrial expansion from the packaging sector is set to continue in the post-COVID-19 economy.

The packaging industry is forecast to grow 3.5% year on year until 2026 (Newmark), driven by the sustained growth of the e-commerce sector (eMarketer).

Growing packaging demand has paved the way for a boom in factories and warehouses dedicated to the production and distribution of corrugated cardboard, plastic, and other packaging.

Over the past five years alone, leasing volume driven by the packaging industry was 45% higher than the sector’s 20-year average (Newmark).

Packaging firms have expanded their footprint through heightened M&A activity, which, according to Newmark, has increased over the same period with an average deal volume of 30% above the 20-year average.

Packaging manufacturing companies are expanding their warehouse distribution footprints to locate closer to clients.

According to Lisa DeNight, Director of National Industrial Research at Newmark, occupiers typically require heavy power for manufacturing processes and nearby freight rail access.

This has led to greater packaging industry expansion in locations with high land availability.

For example, in Dallas, strong rail access and vacant plots have led to a buoyant packaging manufacturing and warehouse market. In 2020, corrugated cardboard manufacturers Uline and Green Bay Packaging increased their square feet by 1.1-million and 600,000 respectively (Newmark).

With packaging manufacturers continuing to expand their footprint across the US, there is growing interest among stakeholders as to the ESG credentials of the packaging materials produced.

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