Some Shippers Paying more than Initial Asking Rates to Secure Space

Demand for warehouse and distribution center space in the US remains strong, driven by – what else – ecommerce, new reports this week say.

Supply Chain Digest Says... Lease rates in Northern New Jersey jumped by an incredible 33% through May versus the same period in 2020, CBRE says. What do you say? Click here to send us your comments Click here to see reader feedback

According to real estate firm CBRE, that high demand means rates are rising rapidly. In fact, CBRE finds so-called “taking rents” – the actual lease rates agreed to between the warehouse owner and a tenant, rose 9.7% through May of this year, more rapidly then the rates landlords were asking, which increased 7.1% over the same period across the 58 markets analyzed by CBRE.

Using a home buying analogy, it’s similar tobuyers offering more than the asking price for a new home.

Ecommerce fulfillment continues to drive the market. According to a new report from CenterPoint, a major investor in industrial real estate, ecommerce sales are projected to increase by over $200 billion by 2025.

The kicker – CenterPoint says every increase of $1 billion in ecommerce revenues generates demand for 1.25 million square feet of additional industrial space.

That in turn implies that about 250 million square feet of new ecommerce space will be required in the US over the next four years, a conservative estimate compared to the one-billion square-foot projection reached by real-estate firm JLL. CBRE estimates ecommerce growth will create demand for 330 million square feet of distribution space by 2025.

CBRE also says demand is especially high for space near major ports and large urban areas.

Lease rates in Northern New Jersey jumped by an incredible 33% through May versus the same period in 2020, CBRE says. Rates in the distribution focused-Inland Empire near Los Angeles rose a strong 24.1%, according to CBRE. Taking rents for space of 500,000 or more square feet increased 13.2% from the same time frame.

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Just like the overheated housing market, “there’s limited supply and multiple bidders,” James Breeze, senior director and global head of industrial and logistics research for CBRE, told the Wall Street Journal. “There’s just a few viable options and occupiers really want those options, and they’re willing to pay more for them because they’re so strategically important.”

In fact, in some areas the surging demand has led to not enough suitable land left to build more distribution centers.

That and rising costs in prime areas are pushing warehouse developers and shippers out to the secondary markets, experts say.

What do you think of the dmand for warehouse space and rising rents? Let us know your thoughts at the Feedback section below.