Hot warehouse market shows signs of cooldown

Date: Wednesday, January 11, 2023
Source: Supply Chain Dive

Dive Brief:

  • Warehouse demand continued a steady decline in the fourth quarter as businesses pull back on capital expansion plans amid inflationary pressures and an uncertain economic environment.
  • The amount of occupied warehouse space dropped 9.4% compared to Q3, according to Cushman & Wakefield data. Vacancy rates in Q4 reached 3.3%, a 20 basis point increase from the prior quarter.
  • The demand slowdown comes as even more warehouses are expected to hit the market. Construction completions were up 37% compared to year-to-date 2021, Cushman & Wakefield said.

Dive Insight:

Developers couldn’t build warehouses fast enough during the pandemic after an unprecedented rise in consumer demand left businesses jockeying for space to store their goods. But as consumers tighten their wallets, businesses have in turn begun to pull back from warehouse leasing to save costs on fulfillment.

“New leasing activity continues to moderate as tight market conditions coupled with a potential downturn pushed the quarterly total lower by 28.2% since Q3,” Jason Price, senior research director for Cushman & Wakefield, said in a statement.

Amazon and other major companies have scrapped expansion plans and laid off workers as they adjust to deteriorating economic conditions. Warehouse employment in December declined 3.7% from its peak in July, according to the Bureau of Labor Statistics.

Warehouse supply has now outstripped demand for the second straight quarter, Cushman & Wakefield said. The gap between supply and demand could widen even further as more warehouses hit the market — space under contruction in Q4 was 21.7% higher YoY, though developers are beginning to pull back on new project plans.

Slowing demand may bring benefits for businesses on the hunt for new properties. Rent growth has slowed, with prices climbing 0.9% in Q4 compared a 4% increase in Q3, Cushman & Wakefield said.

Beyond rent relief, increased development is set to expand access to advanced facilities that meet more modern needs such as loading dock capacity or ceiling height. Three-quarters of total warehouse inventory is more than 20 years old, according to CBRE.

“Tenants whose leases are rolling over will have abundant, amenity-laden space options, further disadvantaging older, less functional properties,” the real estate firm said in an investment update.


[Read from the original source.]