As warehouses become scarce in the United States, rents rise, The Wall Street Journal reports. The US warehouse market is starting to look like a buzzing housing market as businesses compete for distribution space and the demand for e-commerce continues to grow.
Competition from companies for warehouse space has increased rents. Retailers and logistics providers try to get products as close to population centers as possible. The desire to do so has led to bidding wars for the most coveted warehouse sites. The push for warehouse space has all come from businesses looking to get online orders to customers’ homes faster. Growing consumer spending has made saving warehouse space an even higher priority for e-commerce businesses.
Demand for industrial real estate has grown so strong that collected rents (the initial base rent on which landlord and tenant agree) are rising faster than asking rents, according to real estate firm CBRE Group, reports the Wall Street Journal. . Industrial rents rose 9.7% in the first five months of 2021 – they only increased 7.1% during that period in 2020, according to CBRE.
Where the demand for warehouse space is greatest
Prices for logistics spaces increase closer to ports and cities, as well as for big box warehouses used for large online order fulfillment operations. First-year base rents in northern New Jersey increased year over year through May. Meanwhile, rents in the Inland Empire of southern California have risen by more than 24%, according to CBRE. Bulk warehouses accepting rents increased by about 13% for properties 500,000 square feet or more during this period last year.
“This creates a situation similar to the housing market, where supply is limited and there are multiple bidders,” James Breeze, senior director and global head of industrial research and logistics for CBRE, told The Wall Street Journal. “There are only a few viable options and the occupiers really want those options, and they are willing to pay more for them because they are so strategically important.”
As much as the COVID-19 pandemic has hurt physical retailer locations, it has led to an increase in online shopping, forcing retailers to invest quickly in their digital shopping capabilities. CBRE said e-commerce would account for 26% of all retail sales in the United States by 2025. The company predicted that figure would be 20% in 2020 – the 6% increase resulted in a need for 330 million additional square feet of distribution space.
Logistics providers, retailers and wholesalers who supply these merchants are now adding warehouses to serve as regional hubs, according to Breeze. The additional warehouses will allow products to be delivered more quickly and to reduce transport costs. Meanwhile, companies want to have more inventory on hand to avoid running into shortages.
“It’s electronic commerce, it’s inventory control and the general public demand for an improving economy,” Breeze said.
Finding land for more warehouses has become a problem
The demand for additional warehouse space is increasing, but not for the places to build them. Industrial land available for new warehouses near cities has become more scarce, as have warehouses themselves, according to a June research report from Prologis, Inc. warehouses, especially for large buildings with higher ceilings and enough parking space for performing labor-intensive e-commerce, according to the Wall Street Journal. The decrease in available land has also forced the development of additional warehouses in secondary markets. For example, Treetop Cos. has been looking for warehouse plots about an hour north of New York City since 2019 in cities easily accessible by freeway.
“In every area where we have locked land, people are now fighting to enter those areas, including Amazon,” Treetop co-founder and managing member Azi Mandel told The Wall Street Journal. “In order for people to get their toilet paper the next day, you need more storage space.”
Joe Dyton can be contacted at [email protected]