Dive Brief:
- Warehouse demand fell in the fourth quarter, with tenant occupation dropping by 19.3% for big-box space from fourth quarter 2015. Accordingly, increased vacancy rose to 7.7% in 2016 from 7.5% the year before, the Wall Street Journal reported Wednesday.
- Industry experts cite potential market equilibrium as a potential cause of the drop in occupancy. Builders remain confident enough to continue building, however, despite fourth quarter net absorption falling.
- 2016's 7.3% growth in warehouse capacity was the greatest gain since the need for more space began in 2011. Builders have responded by creating warehouses greater than 300,000 square feet, a 10x increase since 2012.
Dive Insight:
While some reports attest to a reduction in tenant occupied warehouses, others note that the national industrial vacancy rate continues on its years-long decline. As of January 2017, the industrial sector has registered 27 consecutive quarters of net warehouse occupancy gains, making this expansion one of the longest.
Strong demand from logistics and distribution users are fueling growth, and with that, rent prices have increased 3.9% in 2016's fourth quarter versus that of 2015. In numerous areas, industrial rents are now reaching historic levels. Thanks to e-commerce, supply chains are driving higher leasing rates that allow sellers to maintain quick delivery. The U.S. markets with vacancy levels under 3% are Los Angeles at 1.4%; Orange County at 2.0%; East Bay/Oakland at 2.9% and Nashville at 2.9%.
The growth in warehousing capacity is a risky one of course, but not an uncalculated one. With the prevalence of e-commerce growing with a millennial generation that demands such selectivity and flexibility, construction experts do not believe that a tipping point has been reached where over-supply of warehousing space collapses over stagnant demand.
