warehousing © Endostock |
© Endostock

If you build it, chances are not only that tenants will come, but also that others would like to come too. Warehouse space in the US is tight, and users are facing double-digit increases in charges as a result.

A 9.2% drop in the first quarter saw availability of industrial space at its lowest level since 2001, with the national vacancy rate down to 6.1% in the period.

According to CBRE Group, a Los Angeles-based commercial real estate services and investment firm which published these figures, vacant industrial real estate in the US has been in decline for 24 consecutive quarters.

The market has responded with a slew of warehouse construction – last year 150.5 million square feet, 14% more than the year before. And CBRE expects construction to continue to ramp up over the next two years, though it will remain under the 10-year high of 213.5 million square feet delivered in 2006.

Despite the increase, supply cannot keep up with demand for space, CBRE warned, a statement echoed by James Lang LaSalle, another commercial real estate services company.

But CBRE says at least, the rise in warehouse space will keep a lid on warehouse rents. It expects industrial rents, which increased by 5.3% overall last year to an average $5.74 per square foot, will continue to rise this year before slowing next year.

“The market is very strong right now, but we think we’ll start to see a pause [in rent rises] as more supply comes online this year and next,” said Jeff Havsy, CBRE’s Americas chief economist and managing director of CBRE Econometric Advisors.

“We also expect that demand might ease a little, because it’s been so strong for so long. You’ll probably see a slight pickup in vacancy this year, but nothing dramatic.”

Particularly in demand have been warehouses and distribution facilities with high loading dock ratios – ceiling heights of 26ft or more to accommodate hi-tech stacking racks – and automated storage and retrieval systems. These elements point to e-commerce providers as the driving force.

According to CBRE, e-commerce has been the main force behind the warehouse space shortage, but other segments have contributed to the tight supply situation.

International flows of freight forwarders appear not to have been affected. Forwarder Logfret Inc in New York has not had any problems finding warehouse space, said executive vice president Elio Levy.

“I assume that the type of warehousing able to handle B2C is what is getting scarce, which is normal, due to the boom of online sales and the fact that it is costly to set a warehouse for B2C – manpower and IT being the two main issues,” he added

While finding space has not been an issue, Levy said: “Real estate is getting more and more expensive, especially near big hubs like New York.”

CBRE’s recently published Global Prime Logistics Rents Report shows double-digit rent increases in a number of markets. Oakland, California, chalking up the largest increase, with rents going up 29.8%.

Out of the top ten markets around the world, in terms of rental increases last year, six were in the US and they include the world’s top three: Oakland, New Jersey and the Inland Empire in the Los Angeles area. At the lower end of the spectrum, Brazil’s Sao Paulo registered a decline of 10.5%.

CBRE’s report shows an overall 5.6 % hike in rents in the Americas last year, well ahead of Asia (up 2.5%) and Europe, Middle East and Africa (up 0.8%)

However, for all their recent momentum, US warehouses still have some ground to cover when it comes to high costs overall. CBRE’s report identified Hong Kong, Tokyo, London, Singapore and Stockholm as the most expensive areas in this respect.

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