Despite some concerns about a slowing economy, US shippers continue to demand more distribution space, with Q2 yet another strong quarter for US warehouse landlords.
That according to the new Q2 US Industrial and Logistics report from real estate firm CBRE. The figures cited below from the report represent all "industrial" properties, but most of that is in fact distribution space.
Supply Chain Digest Says... |
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Highlights from that report include:
• Q2 2019 again saw a historically low vacancy rate of just 4.3% and an availability rate that held steady at just 7.1%.
• The 41.4 million sq. ft. of new supply delivered in Q2 was down 1.9% quarter-over-quarter and by 20.0% year-over-year, so supply is slowing down. However, that in the end might drive rates higher.
• The under-construction pipeline though grew 3.6% quarter-over-quarter to 293.2 million sq. ft.
• Net asking rents increased by 0.4% quarter-over-quarter to an average of $7.50 per sq. ft. That is the highest level since CBRE Econometric Advisors began tracking the metric in 1989. However, rates vary wildly across markets, as we will detail later in this report.
• Rents have increased 6.4% year-over-year, which is 2 percentage points above the average annual growth rate since 2012.
• Despite concerns over global trade tensions, demand for logistics space remains strong overall as ecommerce, food and beverage and home improvement companies continue to drive leasing activity. SCDigest notes the tariffs have actually caused many companies to accelerate imports to beat the tariffs, increasing the demand for space.
• The continued strength of the US dollar and resilient consumer activity will likely also generate more demand for imports – and space to store them. A dollar increase in imports consumes three times as much warehouse space as a dollar increase in exports.
While the overall market is strong, there are major differences across markets.
As shown in the graphic below, the availability rate is now just 3.4% in Detroit, but about three times that in Austin, TX.
Among the several dozen individual markets CBRE tracks, the highest lease rate was found on the San Francisco peninsula, at a whopping $36.90 per square foot.
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Contrast that with the cheapest markets, Greenville, SC and Memphis, TN, both with rates of just $3.38 per square foot.
Some notable markets and rates include:
• Northern, NJ: $8.01
• Philadelphia: $6.31
• Boston: $9.44
• Atlanta: $4.96
• Chicago: $5.09
• Cincinnati: $4.31
• Indianapolis: $4.34
• St. Louis: $4.31
• Dallas/Ft. Worth: $4.70
• Houston: $5.31
• Orlando: $6.78
• Denver: $7.93
• Los Angeles: $10.58
• Phoenix: $7.68
• San Jose: 23.79
• Seattle: $10.23
• Reno: $5.64
Inland Empire Almost Sold Out
Meanwhile, demand for space in the so-called Inland Empire area that provides warehouse space in support for the ports of LA and Long Beach has exploded.
The desire of companies to bring inventory into the US to beat or more effectively manage US tariffs has caused utilization of the huge amount of space there to be almost all gone.
According to an article in Bloomberg, of the amazing 1.8 billion square feet of space in the Inland Empire just 1-2% is now available.
As a result, for importers, "the ability to front-load, as they did last year, to a large extent is taken off the table," Jock O'Connell, an international trade adviser at Beacon Economics, told Bloomberg, as there is just no space to store more inventory.
This scenario is nothing but good news for owners of industrial real estate such as Prologis, one of the world's biggest warehouse landlords and a major owner of space in the Inland Empire. Its shares have jumped more than 35% this year.
What's your take on the US warehouse space market right now? Let us know your thoughts at the Feedback section below.
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