Demand for industrial real estate is skyrocketing due to “just in case” inventory needs.
Warehousing Space Effectively Sold Out
All the suppliers within the global supply chain that help to feed, clothe and provide goods to us around the world need more logistics warehousing space.
According to the largest real estate investment trust (REIT) Prologis, demand from e-commerce, manufacturers and suppliers of goods of all kinds has pushed the vacancy rate of warehouse space to a record-low of 3.9%. Rent for that warehouse space increased a record-high of +7.1% q/q in Q3 2021.
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Likewise, net absorption (the amount of space newly occupied minus space newly vacated) hit a record-high of 280M square feet (MSF) year to date. This absorption rate of 280 MSF is more than twice last year’s level.
Another real estate advisor and manager, Transwestern, puts net absorption for the last four quarters at 500 MSF. Transwestern indicates there is now 636.6 MSF of industrial warehouse space under construction nationally…twice the level five years ago. Prologis believes an additional 800 MSF of warehouse space is needed.
Need for Industrial Warehouse Space Transitioning from “Just in Time” to “Just in Case”
For years now, many supply companies have been focusing on their immediate inventory or “just in time” needs. Now, however, issues such as weather, labor shortages supply chain disruptions, etc. are making demand for more “just in case” space imperative.
You’ll hopefully forgive me for writing, such demand demands more space.
Companies & Investors Looking to Coastal & Secondary Markets to Meet Space Demands
According to Transwestern, 27% of approximately 626 MSF of industrial space now being built is being constructed in only six markets. Those markets include:
- Dallas
- Phoenix
- Atlanta
- California’s Inland Empire
- Chicago
- Philadelphia
As a result of this current warehouse space construction, residential as well as industrial rents in these six locations are soaring. Such rent increases may be on the horizon in Savannah GA and Pennsylvania’s Lehigh Valley also because Transwestern has identified these markets as “attractive” for industrial development.
Prologis points to other gateway locations that are, in fact, gateways from ports to everywhere else in the country. Terreno Realty is looking to its operational markets (Los Angeles, New York/New Jersey, San Francisco, Seattle, Miami and Washington DC) as “no-brainer” markets for industrial development.
Thanks to Millionacres, a subsidiary of The Motley Fool.
