Historically Low Warehouse Vacancy Leading to Upward Development

Vacancy rates for industrial and logistics space, including ecommerce fulfillment, is at a historic low of 4.3% and new construction is constrained, leading to limited expansion options for warehouse occupants and higher rents, according to commercial real estate brokerage CBRE.

One effect of the continuing tight domestic market, CBRE found in its Q3 report, is an increase in development of multistory facilities in urban locations. CBRE reported that seven such projects are underway or in the pipeline in New York, San Francisco and Seattle.

“With consumers expecting faster delivery times, there’s a looming shortage of urban infill sites for new last-mile delivery, prompting developers to build vertically,” according to the CBRE report.

Availability rates for multistory warehouse facilities have decreased by 27% since 2014, with rents increasing by 20%, CBRE found. Drivers for this type of development include high population density, strong ecommerce penetration and tight market conditions for suitable last-mile fulfillment operations.

The continued push of ecommerce companies into opening up physical spaces, as well as traditional retailers restructuring their distribution networks to meet ecommerce demands and limited new construction will drive down net space absorption and keep vacancy low into 2019, CBRE found. The vacancy rate has been below 5% since the first quarter of 2016.

A dramatic increase in imports ahead of September tariffs – up 4.8% in August – also pushed up inventory carrying costs for ecommerce and retail companies and contributed to the warehouse supply gap, CBRE found. “In an environment of rising wages and limited labor supply, this poses a challenge for logistics operators,” it said in the report.

Leave a Reply

Your email address will not be published. Required fields are marked *