Booming U.S. Warehouse Market Shows Signs of Cooling

Liam adam2022-10-14

A pandemic-driven boom in storage demand is showing signs of slowing, as companies become more cautious about renting in an uncertain economy and seek to reduce large inventories that have overwhelmed storage space this year .

Extremely thin vacancy rates began to rise and a measure of U.S. leasing activity fell back in the third quarter to the lowest level since the pandemic began. Warehouse space remains tight, with some companies still storing goods on trailers outside distribution centers, but the larger numbers suggest pressure on a supply chain choke point is mounting. attenuates.

Industrial real estate developers and researchers warn that demand remains strong compared to before the pandemic, but developers are taking a more cautious approach to new projects as borrowing costs rise and shipping volumes increase. freight recede.

« There have been fewer transactions, » said Andrew Mele, general manager of Trammell Crow’s northeast region office. Co.

a Dallas-based development subsidiary of real estate services company CBRE Group Inc.

According to commercial real estate services firm Cushman & Wakefield, the average warehouse vacancy rate in the United States fell from 3.2% in the third quarter to 3.2% in the prior quarter..

It was the first increase in two years and it is still well below the national average vacancy rate of 5% in 2020.

The company said companies in the sector signed new leases for 163.1 million square feet of warehouse space in the third quarter, up from 207.4 million square feet the previous quarter. The third quarter figure was still higher than the area leased in any quarter in 2019.

“Maybe the foam is coming off the top, but you still have a very stable and strong rental market for the industry. It’s going from very good to good,” Mr. Mele said.

Real estate experts say part of the drop could be due to companies not finding enough empty warehouse space after nearly two years of frantic construction and renting.

« We’re not seeing an avalanche of space coming to market or anything like that, but we’re starting to see signs that things are slowing down a bit, » said Mark Russo, senior director and head of industrial research. at real -real estate service provider Savills Inc.

Demand for storage space exploded in 2020 as households in lockdown during the pandemic kicked off a wave of online shopping and retailers sought to position more goods for fast home delivery. Amazon.co.uk Inc.

said it doubled the size of its distribution network in 24 months as its business grew.

An Amazon last mile distribution facility under construction last year in Syosset, NY, on Long Island.

Photo:

Bruce Bennett/Getty Images

Now Amazon is halting growth in its warehousing operations and even subletting some of its space as e-commerce demand declines.

Retailers including Target Corp.

walmart Inc.

and Nike Inc.

are dealing with excess inventory after a change in consumer habits left them with too many stocks of items such as casual clothes and home goods. Brands have canceled and withdrawn orders and are working to sell the extra products ahead of the holidays.

Companies are also more cautious about signing leases as they seek to contain high supply chain costs and be more wary of big investments in a faltering economy, said Derek Fish, vice president of US acquisitions. for the Annapolis, Maryland-based real estate company. Transportation Realterm LLC.

“It becomes a little more difficult to shake hands, to negotiate a lease, to sign an agreement. It takes longer,” Fish said. « Some of the larger groups are on hold or saying, ‘Hey, we’re going to be making new leasing and capital spending decisions in 2023 when we have a clearer picture of our total business forecast. « »