Another great read from WSJ.com – By Jennifer Smith
Competition for warehouse space is driving up industrial rents as retailers and logistics providers race to move goods closer to population centers, with some engaging in bidding wars for the most coveted sites.
The competition is driving up industrial rents as retailers and logistics providers race to move goods closer to population centers, with some engaging in bidding wars for the most coveted sites. Businesses are pushing to deliver online orders faster to the homes of digital shoppers and responding to growing consumer spending that is helping drive an economic rebound.
Demand for industrial real estate is so strong that taking rents—the initial base rent agreed on by a landlord and tenant—are rising faster than asking rents, according to real-estate firm CBRE Group Inc. Industrial taking rents were up 9.7% in the first five months of 2021 compared with the same period last year, while industrial asking rents rose 7.1%, according to CBRE, which tracks 58 U.S. markets.
Prices are rising at a particularly strong rate for logistics space near ports and cities, and for big-box warehouses such as those used in large online fulfillment operations. First-year base rents in Northern New Jersey jumped by a third year-over-year through May, while those in Southern California’s Inland Empire rose 24.1%, according to CBRE. Taking rents for bulk warehouse space of 500,000 or more square feet increased 13.2% from the same period in 2020.
The pandemic and lockdowns that shuttered many storefronts and kept people at home supercharged online sales, pushing retailers to speed up investments in digital shopping capabilities. E-commerce will account for 26% of all U.S. retail sales by 2025, up from an estimated 20% in 2020, according to CBRE forecasts based on 2020 e-commerce activity data from market researcher Euromonitor International, putting further strain on warehouse supply and generating demand for another 330 million square feet of distribution space.
Logistics providers, retailers and wholesalers that supply those merchants are adding more warehouses to serve as regional hubs, Mr. Breeze said, to deliver goods faster and cut transportation costs. Companies are also looking to keep more inventory on hand to guard against shortages.
“It’s e-commerce, it’s inventory control and general demand from the public on an improving economy,” he said.
That’s adding to the pressure on the supply of warehouses, especially for larger buildings with higher ceilings and ample parking to accommodate labor-intensive e-commerce fulfillment, and pushing more development out to the secondary markets.
Teaneck, N.J.-based real-estate firm Treetop Cos. has been scoping out large parcels of land for warehouses an hour or so north of New York City since 2019, in upstate towns like Middletown and Fishkill, N.Y., with easy access to highways.
“In every area where we locked up land, now people are fighting to get into those areas, Amazon included,” said Treetop co-founder and managing member Azi Mandel. “For people to get their toilet paper the next day…you need more warehousing space.”