Demand Continues to Outpace New Warehouse Construction

Demand continues to outpace a four-year surge in warehouse development—much of it speculative—and allay any fears about overbuilding.

There currently is more than 255 million sq. ft. of warehouse space under construction, 70.2% of it on spec. Since 2015, however, warehouse demand has outpaced new warehouse completions by 169 million sq. ft. and rents have increased by 19.2%, according to CBRE Econometric Advisors.

Five of the top 10 markets for speculative development have market conditions that justify adding more big-box warehouses: vacancy rates below or slightly above the national average (4.4%) and aggregate net asking rent growth of 7.8% annually.

The remaining five markets were well above the national vacancy average and their aggregate rent growth averaged 4.6% due to more available supply. With demand not likely to diminish, speculative big-box developments in those five markets are expected to lease up shortly after completion. E-commerce, food & beverage, wholesaler and third-party logistics users, which have dominated pre-leasing activity, are the best candidates to occupy these new modern warehouse facilities.

Figure 1: U.S. Warehouse Space Under Construction

Source: CBRE Econometric Advisors, Q1 2019.

 

Figure 2: Top-10 Markets for Speculative Warehouse Space Under Construction, Q1 2019

Source: CBRE Econometric Advisors, CBRE Research, Q1 2019.

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