Limitation of warehouse space leads to bidding, an increase in rent

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As warehouse space diminishes in the United States, rents rise, according to The Wall Street Journal. reports… The US warehouse market is beginning to resemble a bustling housing market as companies vie for distribution space and e-commerce demand continues to grow.

Business competition for warehouse space has led to an increase in rents. Retailers and logistics providers strive to deliver goods as close to localities as possible. The desire to do so has led to a bidding war for the most coveted warehouse sites. The push to build warehouse space comes from companies wanting to deliver online home orders to customers faster. The fact that consumer spending is on the rise has made acquiring warehouse space an even higher priority for e-commerce companies.

According to real estate agency CBRE Group, demand for industrial property has become so high that rents (the initial base rent negotiated between landlord and tenant) are growing faster than the asking rent, according to The Wall Street Journal. According to CBRE, industrial rents rose 9.7% in the first five months of 2021, up from just 7.1% in 2020.

Where the demand for warehouse space is highest

Prices for logistics premises are increasing mainly near ports and cities, as well as in relation to large warehouse premises, which are used for large online fulfillment transactions. Base rent for the first year in northern New Jersey increased by a third from a year ago to May. Meanwhile, rents in the Inner Empire in southern California rose more than 24%, according to CBRE. In the past year, rents for wholesale warehouse space have increased by about 13% for properties of 500,000 square feet or more.

“This creates a situation similar to that in the housing market, where supply is limited and there are many participants,” James Breeze, senior director and global head of industrial and logistics research at CBRE, told The Wall Street Journal. “There are only a few viable options, and tenants really want those options, and they are willing to pay more for them because they are so strategically important.”

The COVID-19 pandemic has not only wreaked havoc on physical retail stores, but also led to a surge in online shopping, forcing them to quickly invest in their digital shopping capabilities. CBRE said e-commerce will account for 26% of all U.S. retail sales by 2025. The company predicts that in 2020 this figure will be 20% – an increase of 6% led to the need for an additional 330 million square feet of retail space.

Logistics providers, retailers and wholesalers who supply these sellers are now adding warehouses that act as regional hubs, Breeze said. Additional warehouses will allow faster delivery of products and reduce transportation costs. Meanwhile, businesses want more inventory to avoid shortages.

“This is e-commerce, this is inventory management and the general demand from society to improve the economy,” said Breeze.

Finding land for additional warehouses became a problem

The demand for additional storage space is growing, but there are no places for their construction. According to a June study by Prologis, Inc., there is less industrial land available for new warehouses near cities, as are the warehouses themselves. parking for labor intensive e-commerce transactions, according to The Wall Street Journal. Less land availability has also prompted more storage space to be built in secondary markets. For example, Treetop Cos. Since 2019, he has been looking for land for warehouses about an hour’s drive north of New York in cities with easy highway access.

“In every area where we have blocked the land, people are now fighting to get to those areas, including Amazon,” Treetop co-founder and managing member Hazi Mandel told The Wall Street Journal. “You need more storage space to get people to get toilet paper the next day.”

Joe Dayton can be reached at joed@fifthgenmedia.com.

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