As warehouse space becomes scarcer in the United States, the higher rents are getting, The Wall Street Journal reports. The U.S. warehouse market is beginning to resemble a buzzing housing market as businesses vie for distribution space with e-commerce demand continuing to grow.
Businesses’ competition for warehouse space has increased rents. Retailers and logistics providers are trying to get products as close as they can to population centers. The desire to do so has led to bidding wars for the most coveted warehouse sites. The push for warehouse space all stems from businesses wanting to get online orders to customers’ homes faster. The fact that consumer spending is going up has made gaining warehouse space even more of a priority for e-commerce companies.
Industrial real estate demand has become so strong that taking rents (initial base rent that the landlord and tenant agree upon) are going up faster than asking rents, according to real estate firm CBRE Group, The Wall Street Journal reports. Industrial taking rents increased 9.7% during the first five months of 2021—they only rose 7.1% during that timeframe in 2020, according to CBRE.
Where warehouse space demand is the highest
Logistic space prices are rising most near ports and cities, as well as for the big box warehouses that used for large online fulfillment operations. First-year base rents in northern New Jersey increased a third year-over year through May. Meanwhile, rents in southern California’s Inland Empire went up more than 24%, according to CBRE. Bulk warehouse space taking rents increased approximately 13% for properties 500,000 square feet or more during that time period last year.
“It’s creating a situation similar to the housing market, where there’s limited supply and multiple bidders,” James Breeze, senior director and global head of industrial and logistics research for CBRE told The Wall Street Journal. “There’s just a few viable options and occupiers really want those options, and they’re willing to pay more for them because they’re so strategically important.”
As much as the COVID-19 pandemic hurt physical retailer locations, it led to a spike in online shopping, forcing retailers to quickly invest in their digital shopping capabilities. CBRE said that e-commerce will make up 26% of all U.S. retail sales by 2025. The firm predicted that figure would be 20% in 2020—the 6% increase has led to a need for 330 million more square feet of distribution space.
The logistics providers, retailers and wholesalers that supply those merchants are now adding warehouses to act as regional hubs, according to Breeze. The additional warehouses will help deliver products faster and decrease transportation costs. Meanwhile, businesses want to have more inventory on hand to avoid going through shortages.
“It’s e-commerce, it’s inventory control and general demand from the public on an improving economy,” Breeze said.
Finding land for more warehouses has become an issue
The demand for additional warehouse space is growing, but places to build them is not. Available industrial land for new warehouses near cities has become scarcer, just like the warehouses themselves, according to a June research report from Prologis, Inc. The lack of land has added pressure to the warehouse supply, particularly for bigger buildings with higher ceilings and enough parking for labor-intensive e-commerce fulfillment, according to The Wall Street Journal. Less available land has also forced more warehouse development to occur in secondary markets. For example, Treetop Cos. has been looking at land for warehouses approximately an hour north of New York City since 2019 in towns with easy highway access.
“In every area where we locked up land, now people are fighting to get into those areas, Amazon included,” Treetop co-founder and managing member Azi Mandel told The Wall Street Journal. “For people to get their toilet paper the next day, you need more warehousing space.”
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