Supply of Warehouse Space Catching Up with Demand

After years of an extremely tight market for commercial warehouse space, mostly due to the booming growth in ecommerce, a rapid increase development including spec projects has been slowly closing the gap.

“New construction has been relatively disciplined, so the market is much stronger,” Hamid Moghadam, CEO of global industrial real estate firm Prologis told the Wall Street Journal. “Now we are getting into the more mature part of the cycle. It’s more of a balanced market, with modest rental growth.”

Availability of industrial space in the U.S., including warehouses and manufacturing facilities, declined for the 27th consecutive quarter, extending the longest streak on record, according to a new report from commercial real estate firm CBRE Group. But the decline is slowing.

The fourth-quarter decline was 8.2%, down five basis points or .05% from the third quarter, to its lowest level since the first quarter of 2001, according to CBRE. This demonstrated the beginning of a turn, as the average quarterly decline has been 25 basis points over the past six years. Of the 64 major U.S. markets tracked by CBRE, 40 posted declines in available industrial space in the fourth quarter, while 24 showed an increase.

CBRE said the slight slowdown is more likely due to growing supply, not a drop in demand. Since the second quarter of 2010, demand has consistently outpaced new supply in the sector. CBRE defines availability as all space listed as available for lease, including both vacant space and facilities that are occupied but marketed for sublease.

“The market still is solid for demand, but supply finally is catching up,” said Jeffrey Havsy, CBRE’s chief economist for the Americas. “We’re not expecting availability to end up rising dramatically. Rather, it ultimately will remain in balance. As supply and demand continue to equalize, we’ll see rent growth start to flatten out.”

The topic of warehouse space availability and how to address it will be covered at Operations Summit 2017 (March 27-29, Pittsburgh) in a session entitled “Space Crunch: Getting Creative in a Tight Market for Facilities.” The merchant panel will be led by Ben Conwell, Senior Managing Director and National Practice Leader, Ecommerce Fulfillment at Cushman & Wakefield.

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