To understand why online shopping creates outsized demand for warehouse space, let’s go on a journey with the humble golf ball.

After rolling off the production line, golf balls are packed into sleeves and cases, the cases are loaded onto pallets, and the pallets are shipped to suppliers’ warehouses.

When a bricks-and-mortar golf retailer runs low on stock, it orders a pallet of balls from its supplier. When the pallet arrives, a store worker breaks it down into cases, sleeves, and perhaps individual balls, then restocks the shelves and leaves the rest in the store room.

When we order golf balls through an e-commerce channel, a warehouse worker has to do all that breaking down in the warehouse, then pack the order and send it to the customer. That requires much more floor space than if they were just shipping pallets to golf stores.

So, even if we use the same number of golf balls from one year to the next if we buy a larger proportion online, e-commerce retailers will need more warehouse space to cope. The same goes for pretty much any mass-produced consumer product. We’re still in an e-commerce boom and we are some way from reaching bust. E-commerce will account for 33 percent of U.S. retail sales in 2027, up from 25 percent in 2022, according to one estimate.

Another force that’s pushing up demand for warehouses is the on-shoring and near-shoring of U.S. manufacturing. Against a backdrop of anti-globalization and after the supply chain disruption wrought by the pandemic, American businesses are choosing to put more of their manufacturing operations on home soil or at least, bring them closer to home.

On-shoring and near-shoring have a multiplier effect on the market, because new supply chains are built to support increased domestic production, which requires extra warehouse space. Further, manufacturers seek to buy warehouses and convert them to factories, reducing space in the face of rising demand.

Growing demand for e-commerce and the rise of on-shoring and near-shoring are positive long-term factors for warehouse investors. Valuations today are off their all-time highs because of a glut of supply and financing concerns for owners and developers, but they’re still buoyant given recent sharp shocks, not least the post-pandemic spikes in inflation and interest rates.

In the early months of the pandemic, we saw a sharp rise in stay-at-home ordering through e-commerce channels. Businesses quickly ran out of inventory, so instead of planning for “just enough” inventory, they began planning for “just in case” inventory, and they needed more warehouse space to store this inventory. Warehouse vacancy rates fell to near-zero and rents shot up.

Developers spotted an opportunity and began pouring money into warehouse building projects, many of which had scheduled delivery dates in 2023-24. But by then, inflation was spiking and discretionary spending was falling, so people weren’t buying as much. So there was a lot of new warehouse supply coming to market just as demand was falling.

Meanwhile, interest rates were rising fast, which was bad news for large numbers of owners and developers who had construction loans maturing in 2023 and 2024. It’s something of a phenomenon: nearly $1.7tn of the $4.7tn worth of U.S. commercial real estate loans are forecast to mature this year and last year. It’s forcing owners and developers to have serious conversations with their bank managers about refinancing at higher rates, paying down debt, putting equity into deals, or even selling real estate.

We’re starting to see significant opportunities to invest in distressed warehouse businesses. We see this trend continuing through, and perhaps accelerating in 2025. As a result, we’re increasing our deployment rates.

When I say “distressed”, I don’t mean we’re investing in deadbeat businesses. Most of the time, owners seek to sell quality businesses at discount prices to help service their debt. Right now, we’re in a window where owners and developers simply have a financial need to sell.

There’s another reason we see opportunity in the near term: the post-pandemic interest rate spike slammed the brakes on warehouse construction. Once we’ve worked through the present-day supply glut, that delay in construction will filter through as a squeeze on floorspace, creating a window in which demand outstrips supply, and rents rise.

So whether we’re shopping online for golf balls, t-shirts, or dish soap, the continuing shift to e-commerce will keep driving demand for warehouse space. That’s why we’re optimistic about the long-term prospects for the sector.