Ongoing demand leads construction of new warehouses, says CBRE report

The thesis of demand continuing to outpace new warehouse construction and development continues to remain firmly intact, according to research issued this week by Los Angeles-based industrial real estate firm CBRE.

CBRE reported that there is more than 255 million square-feet of warehouse space under construction, with 70.2% of it being speculative. What’s more, CBRE said that based on data issued by CBRE Econometric Advisors, going back to 2015, warehouse demand has outpaced new construction completions by 169 million square-feet, with rents up 19.2% over that same period.

From a market perspective, CBRE explained that five of the top ten markets for speculative development “have market conditions that justify adding more big-box warehouses,” with vacancy rates that are below or slightly above the 4.4% national average, in addition to aggregate net asking rent growth of 8.7% on an annual basis.

And the other five markets, CBRE said, were “well above the national vacancy average, with aggregate rent growth averaging 4.7%, which it attributed to more available supply.

CBRE Senior Industrial & Logistics Analyst Jamil Harkness said in an interview that warehouse demand is expected to remain on par with new completions in the foreseeable future.

“There is a lot of speculative warehouse development underway, and many developers are confident that there is enough demand from e-commerce, food & beverage, retail, wholesalers and 3PL users to occupy new completions,” he said.

When asked what are the ongoing drivers for increased demand for new construction demand, Harkness explained that e-commerce and the emergence of cold storage (food & beverage) lead the pack.

“Major markets with large metro populations have benefited the most due to the increase in online sales, namely the growing convenience of purchasing items for home delivery,” he said. “These forces coupled with low vacancies should only increase the need for warehouse space, prompting more warehouse development. Conversely, the only impediments to continued demand and development are forces outside of commercial real estate, like a tariff war and other unforeseen economy crises.” 

CBRE said that the markets most likely to see demand continue include: Inland Empire, Los Angeles; Las Vegas; Seattle; and New York, due to low warehouse vacancies.

CBRE’s Harkness noted that infrastructure, port access, and the growing propensity to purchase items online makes these markets ideal for continued warehouse demand from e-commerce, food & beverage, wholesaler, and 3PL users.