Leading up to and after the COVID pandemic that began in 2020, it was flush times for operators of warehouse and distribution space, with strong demand, record low vacancy rates in many markets, and steadily and at times rapidly rising lease rates
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Even with the flatness in rates, Cushman says on average they are still 53% higher in Q1 of this year versus the same period in 2020 – quite a jump in our years.
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Much of that rapid growth in demand came as a result of the surge in ecommerce that the US experienced in the stay at home economy seen for months after the pandemic hit.
Amazon, for example, increased the size of its fulfillment center square footprint about 100% in just about two years after the start of the pandemic. Across the US, more than 2 billion square feet of warehouse space was brought on-line in only about four years, according to real estate firm Cushman & Wakefield.
But In good news for shippers, there have been signs of some softening in the warehouse market in recent quarters, as evidenced from the overview view reports on warehouse space regularly produced by leading commercial real estate firms such as Cushman and others, The move in the negative direction was even stronger in the recently ended first quarter of 2024, according to data from Cushman released this week.
The company’s analysis found average asking lease rates across the US stayed at $9.73 per square foot in Q1 – the same as it calculated for Q4 of 2023. That was the first time in four years, Cushman and Wakefield says, that US rates did not rise versus the previous quarter in four years.
Meanwhile, the Wall Street Journal reports that another real estate firm, Savills, finds that with softer demand, rates in the warehouse hotbed of the Inland Empire near Los Angeles actually fell 2.7% in Q1 versus the previous quarter.
The Journal story also says that actual rates fell even more than that, with warehouse owners increasingly offering discounts and extra free months of space to win the business with shippers.
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Average US vacancy rates are also moving higher. The Cushman & Wakefield analysis found vacancies rose to an average of 5.8% in Q1, up from 5.2% in Q4 of last year. Compare that to just about 3% in late 2022, though again vacancies differ by market.
Even with the flatness in rates, Cushman says on average they are still 53% higher in Q1 of this year versus the same period in 2020 – quite a jump in our years.
And rates appear likely to continue to be under pressure, with a lot of new warehouse space in the construction pipeline.
The Journal says around 115 million square feet of newly built warehouse space became available in Q1, far above the 10-year average of 42 million square feet completed each quarter from 2010 through 2019.
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