Retailers are booking space in warehouses to quickly fill online orders, driving vacancy rates into the low single digits in some cities
By ERICA E. PHILLIPS
Warehouse space is growing scarce as retailers lease buildings near major cities to fill online orders. PHOTO: BLOOMBERG NEWS
Retailers are leasing warehouse space at a record-setting clip, as e-commerce drives companies to locate closer to population centers and keep more products on hand to meet customers’ speedy delivery expectations.
Firms leased 70.1 million square feet of industrial space in the second quarter of 2016, the most in over 30 years of data and up 6% from the same quarter last year, real-estate brokerage Cushman & Wakefield Inc. said in a report Monday. In a separate report, brokerage CBRE Inc. said warehouse availability declined for a 25th consecutive quarter to 8.8%.
Retailers have been renting warehouses faster than developers can build them, as they race to build infrastructure to fulfill surging online orders. The latest trend of opening smaller distribution centers near cities to improve delivery times and accept returns is driving vacancy rates into the low single digits in some areas.
“The good economy and the change in distribution logistics has led to an increased demand,” said Jeffrey Havsy, CBRE’s chief economist in the Americas. “Now it’s more about having the right products near the customer, and that means more points of distribution rather than a single point of distribution.”
Soaring demand is also driving up rents. Cushman & Wakefield estimated that industrial rents increased in 68 of 79 major U.S. markets, rising at an overall rate of 4.1% since the same period last year. Firms in those markets have leased 132.2 million square feet this year while developers have delivered 99.9 million square feet of new space, the real-estate firm said.
CBRE estimates that developers will complete roughly the same amount of new warehouse space this year as they did last year–about 150 million square feet in the markets the firm tracks. That’s less than the 2006 high of 213.5 million square feet. But it should be enough to put a floor under vacancy rates, analysts said.
Write to Erica E. Phillips at [email protected]
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