Warehouse Availability Stabilizes in Tight U.S. Logistics Market
Date: Thursday, April 18, 2019
Source: The Wall Street Journal
Report says availability rate for distribution, storage sites remains at lowest level in nearly 20 years
The U.S. warehouse market is coming closer into balance after a long stretch when strong demand, driven by economic expansion and a push to build up e-commerce distribution networks, far outpaced available storage space.
The availability rate for U.S. industrial real estate, which has been plunging for years, dipped less than a hundredth of a percentage point in the first quarter, leaving it essentially at 7%, according to real-estate brokerage CBRE Group Inc.
Supply marginally outpaced demand in the first quarter across 55 U.S. regional markets, CBRE said in a preliminary report released Thursday. Developers completed roughly 33 million square feet of warehouse space, while aggregate net absorption—the net amount of space either newly leased or newly vacated—came to 32 million square feet, CBRE said.
The market for industrial space remains tight, however, with availability still at the lowest level it has been since 2000, suggesting retailers, logistics providers and manufacturers will continue to have a tough time leasing warehouse space, particularly in high-demand areas near urban centers.
“The relentless falling of availability kind of eased up in the first quarter,” said Richard Barkham, CBRE’s global chief economist and head of research for the Americas. But, “it’s a tight market where people will find it quite difficult to lease space. The plateauing is a very small crumb of comfort.”
Commercial real-estate services firm Jones Lang LaSalle Inc. said separately that its measure of the vacancy rate for U.S. industrial real estate ticked up slightly to 5% in the first quarter while rent growth slowed.
The development pipeline remained robust, JLL said, with some 258.8 million square feet under construction. Developers added nearly 10 million square feet to the pipeline, up 4.3% from the last quarter of 2018.
Dallas, New Jersey, California’s Inland Empire and Eastern and Central Pennsylvania—all key logistics hubs—were the top industrial markets, accounting for 35.6% of total U.S. absorption in the first quarter, JLL said.
Mr. Barkham said he expects net absorption to pick up this year, noting continued strength in the U.S. economy and the ongoing retail-market shift to e-commerce, which requires vast online fulfillment centers to process online orders. “The U.S. is sucking in a lot of trade from overseas despite the trade wars,” he said. “All this points to propelling logistics demand.”
Demand for industrial space continued to outpace supply on a 12-month rolling basis, according to CBRE. There was 21 million square feet of excess demand over the four quarters ended March 31, compared with 18 million in 2018.