News / Cooling demand increases warehousing vacancies, with rents inching down

ID 96678949 © Pressmaster | Dreamstime.com

Cooling demand has ended the long run of increasing warehousing costs and nudged the average US vacancy rate above the 5% mark.

And this trend is expected to continue – but without triggering a significant drop in rents.

Warehousing real estate investment trust Prologis has shifted into reverse; citing lower occupancy, it lowered the mid-point for average occupancy of its facilities this year by 75 basis points, to a range of 95.75% to 96.75%.

Its large customers, like UPS and FedEx, have seen their volumes shrink and are not predicting significant increases in the near future.

Prologis lowered its forecast for core funds from operations in the current year to a range of $5.37 to $5.47, down from $5.42 to $5.56. The announcement sent its shares down 3%.

According to WarehouseQuote’s Warehouse Pricing Index, US storage costs in the first quarter were still up 0.5% from a year ago, but slipped 0.6% from Q4 23, the first decline since the index was launched. Warehousing rents have decreased slightly over four consecutive months, WarehouseQuote pointed out.

“After a year’s worth of destocking efforts, many warehouse operators have an ample amount of available capacity for the first time since 2020,” the report’s authors commented.

The latest figures from Cushman & Wakefield, covering the US warehousing sector in the first quarter, show average warehousing rates flat in the period, compared with the previous quarter – for the first time in four years. The vacancy rate climbed to 5.8%, having pushed past 5% in the final quarter of last year, to 5.2%.

The commercial real estate services firm predicts that the vacancy rate will continue to inch upward, to a peak of just over 6%, before an expected new cycle of re-tightening.

While the average vacancy rate has moved upwards, a lot of areas have not seen any relief. Cushman & Wakefield pointed out that in the fourth quarter of last year the vacancy rate was below 5% in 48 out of 83 markets. That number includes nine locations where vacancies were below 3%.

Many markets will remain below the historical average in vacancy rates, Cushman & Wakefield  cautioned.

While rates have softened, in the first quarter they were still 53% higher than in the first three months of 2020, the company pointed out.

One factor that contributed to the rate decline in the first quarter has been the entry of more capacity into the market.

Around 115 million sq ft of newly built warehouse space became available in the US, which is significantly higher than the quarterly average over the past 10 years, which has been 42m sq ft added to the national capacity.