Warehousing Construction, Occupancy Expanded in 2004, Report Says

Jul 21, 2005 1:32 AM  By

Commercial warehousing facilities have been in a slump for a few years, but the market is on the upswing, according to year-end surveys conducted by ProLogis, a global distribution solutions provider. During the second half of 2004, newly started bulk distribution and warehouse projects expanded. In the nation’s top 30 markets, total new starts amounted to 54.2 million square feet (msf) during the second half of 2004, a 33% increase over the square footage recorded in the first half. The previous warehouse construction boom peaked during 1999-2000, and total new warehouse starts in the top 30 markets topped out at roughly 125 to 130 msf a year.

For all of 2004, newly started distribution facilities measured 95 msf, up 30% from the previous year’s modest pace, and representing a 2% increase in the total inventory in place. New warehousing projects tend to be speculative ventures, with little or no pre-leasing. These kinds of projects accounted for 73% of total starts during the second half of 2004, compared to 56% for the previous 18 months.

The news hasn’t been so good for commercial property developers, whose construction costs have climbed steadily. Warehouse construction costs rose 10%-12% during 2004. Structural steel prices alone soared 40%-50% last year, although costs moderated toward the end of 2004.

Fewer warehouses are standing empty. The overall vacancy rate for the top 30 markets was 9.6% at the end of last year, a decline from 10% at mid-year and 10.3% at year-end 2003. Rents are also higher—the asking rents for warehouses and DCs climbed 3% on average during the second half of 2004. Although asking rents are a fluctuating statistic, the recent increase is striking, ProLogis says, because it follows a prolonged 12% slump in asking rents that began early in 2001.

“Our near-term outlook calls for the warehouse recovery to continue to unfold much the same as it did last year,” write the ProLogis analysts in their report. “We’re anticipating that demand for warehouse/distribution space will grow slightly faster during 2005 than it did last year, that developers will continue to exercise restraint, and that the overall vacancy rate will recede to the range of 8.75%-9.25% by year-end 2005.”

For more information, contact ProLogis at 303-375-9292 or visit http://www.prologis.com.