Its a good time in America to have a retail space ready to rent out eCommerce merchants are on the hunt and signing large contracts According to a new report from CBRE Group 56 of the largest 100 warehouse leases in the first half of 2018 were with eCommerce firms and third-party logistics providers The supply chain arms race is as competitive as its ever been said Adam Mullen CBREs senior managing director of industrial and logisitics Americas leader Of those leases 30 were for very large spaces warehouses larger than 750 000 square feet According to CBRE high ceilings high modernization and automation-ready spaces are particularly prized feature sets among eCommerce tenants Its all about the ability to move large amounts of inventory and fast By category the biggest lease signers were manufacturers with 14 percent of the market followed closely by beverage providers 11 percent retailers 7 percent and tech firms 4 percent The remaining percentage was placed in the other category Those warehouse spaces are located where one might naturally expect high-traffic corridors with the best access to major metro areas The Inland Empire of California saw the most new-lease activity though Atlanta Chicago Pennsylvanias I-78 I-81 corridor and Dallas-Fort Worth also saw a lot of activity That big rush of eCommerce interest comes despite surging industrial real estate prices because access still remains very much at a premium though the last decade has seen the construction of 1 billion square feet of more modern warehouse space Even with all that building new space only makes up 11 percent of total warehouses in the US Moreover since the rise of free two-day shipping with Amazon Prime retailers are looking for different types of warehouse space and or real estate to build on than they have needed in the past In 2017 the average price of industrially zoned land suitable for warehouse construction within two-day range of a major metro was worth about 100 000 per acre doubling its 2016 value of 50 000-an-acre according to CBRE The cost for smaller so-called last mile warehouses within easy access of urban zones was even steeper up to 250 000 an acre up 25 percent year over year Faced with shortages and rising costs as a result the arms race in warehouse space is only growing literally In Amazons case the eCommerce giant is reportedly solving the lateral limits on warehouse growth imposed by limited acreage with vertical expansion Though Amazon has not yet confirmed the current rumor is that the company will build giant four-story warehouse facilities in Minnesota California Wisconsin and North Carolina that will feature 25 million square feet about 573 acres or nine-tenth of a square mile However while warehouse space is exploding and as everyone is figuring out how to get more for a longer time the opposite situation is obtaining in physical retail Companies arent looking to enter more stores but looking for a lot less when it comes to leasing In hot markets like Manhattan retailers are testing the physical sales waters with short-term leases before making a long-term commitment to a location For example when executives at The RealReal wanted to open a location in SoHo the secondhand luxury-goods consignment company decided on a short-term lease to make sure the neighborhood was the right match for it Our model is all about testing things getting smarter seeing whats working and not working said Rati Sahi Levesque chief merchant at The RealReal according to The Wall Street Journal WSJ Thats how we run our website According to CBRE there were 53 short-term retail deals in 2017 an increase from the 13 deals in 2016 In the second quarter of 2018 there have been at least 28 short-term deals with apparel being the most active tenant category on the list The obvious positive on the tenant side is that they can test the market said Michael Slattery senior research analyst at CBRE He added that for landlords the upswing is that if tenants like the location they will extend their leases While high-traffic areas like New York are seeing retailers pulling back from long commitments more middlebrow locations like the mall are faring far worse Recent data out of JLL found that mall rents in the second quarter dropped 46 percent from the first quarter and 71 percent from one year prior Malls with strong locations were able to nab high-productivity tenants like Whole Foods Wegmans and Nordstrom according to JLLs Q2 Retail Outlook report Those in fairly good locations were leased by tenants like Dicks Belk and At Home Those with only an average location had a harder time finding a replacement tenant and when they did it was usually a lower-performing non-retail tenant Lots of tenants moved on move outs reached 78 million square feet in the second quarter Of those move outs 48 million square feet were in low- to mid-rated malls The vacancy rate at malls around the country hit 86 percent in the second quarter marking the highest level since 2012 when the US was still exiting the Great Recession According to a report in WSJ the vacancy rate stood at 84 percent in Q1 The WSJ also reported around 38 million square feet of space was emptied from April to June which increased the vacancy rate to 102 percent So what do we know Physical retail may not quite be as doornail dead as people were predicting it to be 12 to18 months ago but the trends are getting pretty clear Everyone wants warehouse space and lots of it even if they have to do out-of-the-box things to get it but a physical store Maybe if it can be in a hot location like SoHo and if the commitment isnt too long Physical retail is going to survive but not at its previous scale and assisted much more by digital channels The good news for the mall It might have a future as warehouse space