The recently red hot market in the US for warehouse and distribution space is cooling a bit, even if it hasn’t shown up lease rates yet, with even the mighty Inland Empire near Los Angeles seeing its warehouse business slow.
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Overall, new analysis by real estate firm Colliers found the average gain in US warehouse lease costs in 2023 was a hefty 20.6%. That jump in rents took rates on average across the US to a record $9.72 per square foot, though some individual markets have rates much higher or lower than that number.
However, the Colliers report does say the upward momentum in rents slowed in the second half of the year.
Despite the slowdown, Colliers predicts the upward trend of warehousing rents to continue this year, pointing to still low vacancy levels. That assessment is somewhat shared by warehouse developer Prologis, which recently predicted “modestly positive” rent growth for 2024, which would be down from the strong rise in rates for many years, especially after the pandemic.
Meanwhile, the Wall Street Journal reports that "A once-booming US warehousing market is coping with signs of contraction as businesses consolidate warehouses and in some cases upgrade existing sites rather than add facilities."
It alsosays some companies are unloading storage capacity by subleasing space. The amount of US warehouse space listed for sublease reached a record high of more than 156 million square feet in the fourth quarter of 2023, more than three times the amount available in the fourth quarter of 2021, according to real-estate services firm Savills.
The so-called Inland Empire area east of Los Angeles, which includes cities such as Riverside, San Bernardino, and Fontana, has enjoyed boom times in those years, often with almost zero distribution properties available to lease and no space that could be used to build a new facility on the market either.
But things are changing. According to a recent article in the Los Angeles Times, the torrid growth of the area for distribution has “has come to a halt – bringing uncertainty for thousands of workers and an industry that has been an economic bellwether for the region.”
For example, last year jobs in warehousing in the Inland Empire fell for the first time in more than 20 years. Trucking activity has been down since early in the summer.
“Industrial building vacancies are up and rents are down,” the Times article notes.
Since 2000, the Inland Empire’s population has increased by 45% to 4.7 million. Job growth during that period has been even stronger, rising 68% to 1.7 million, with about 270,000 employed work in transportation and material moving jobs.
Many of those jobs were created early in the pandemic, with dozens of ships were lined up at sea waiting to unload in the ports of LA and Long Beach ports.
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 "When the logjam eased, merchandise flooded into the region, prompting wholesalers and distributors to double down on warehouses and workers,” the Times reports.
“We couldn’t hire fast enough,” Jeff Baldassari, who until August was president of US Rubber Recycling in the Empire, told the Times, adding that “Now the party has ended, and it’s the hangover the next day.”
Experts say the factor that drove the growth in the Empire, such as e-commerce, global trade, and demand for larger, more efficient distribution centers, are long term trends that should help the area return to growth, as some space becomes available as a few DCs have recently closed up shop.
A likely result: consolidation, with older, smaller facilities getting phased out over time.
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