Driven by the rise of ecommerce and the demand for next-day and two-day shipping, industrial real estate capacity continues to tighten while rents and cost per square foot rises. From strong rental growth to the advancement in warehouse technology, below are a few trends to consider for 2019.
Strong Rental Growth
As tenants continue to operate, quality space is scarce and the national vacancy rate has fallen to a historic low of 4.3 percent as demand exceeds supply for the ninth consecutive year.1 The Inland Empire has the highest growth market, followed by New Jersey, Seattle, Oakland, and Vancouver. Given the prolonged tightness in the logistics and real estate sector, ongoing construction, and the growth of omnichannel retail and ecommerce, rents are expected to continue steadily rising in 2019.2
As the “Amazon effect” comes into play and consumers expect faster delivery times, the market for industrial warehouse space is tighter than ever as capacity shrinks. In turn, land is becoming increasingly expensive, with the average land price at $30 per square foot for a single-story warehouse development in the U.S. – double from the past five years. Developers are beginning to build vertically in areas of high population with a strong e-commerce presence.3
The thought behind the multi-story buildings is that if tenants can save on labor and transportation costs, which account for more of the expenses in supply chains, they will be willing to pay higher rents within these highly-populated areas.4 According to CBRE, at least seven multi-story warehouses are being developed or have plans of being developed in New York City, Seattle, and San Francisco.5
Technology and Automation
Technology and automation will continue to disrupt the market as shippers turn to technology to address the demand for speed, as well as labor shortages to increase productivity as unemployment rates reach an all-time low of 3.9 percent.6 This increase in automation ultimately affects the design of warehouses, therefore increasing demand for more build-to-suits and renovations to existing facilities.7
“As ecommerce continues to expand and consumer expectations for fast delivery increases, populated markets are prime locations due to final mile demand, despite the logistics of navigating such crowded cities.” said Michael J. Landsburg, Vice President of Real Estate at NFI. “Companies can prepare for the future by continuing to strategize their growth and expansion plans, utilizing technology and incorporating the new design trends for Industrial Properties.”
Michael J. Landsburg is the Vice President of Real Estate at NFI and has been with the company since 2005. He is responsible for managing the real estate activities for the NFI owned and leased portfolio of over 45.8 million square feet in North America.