Where Warehouse Vacancy is Opening Up in the US

Date: Wednesday, May 10, 2023
Source: Sourcing Journal

More space is popping up for new warehouses and distribution centers across the U.S.—and for apparel supply chain businesses searching for immediate real estate availability, Denver and Dallas-Fort Worth may be their best bet.

Nationwide vacancy across industrial real estate is increasing, jumping 40 basis points (0.4 percentage points) to 3.8 percent in the first quarter from 3.4 percent in the quarter prior, according to a recent report from real estate management firm JLL. The quarter also saw an increase in sublease vacancy, which rose 20 basis points (0.2 percentage points) to 0.5 percent.

“As companies re-strategize their occupancy plans, large blocks of sublease space have been put on the market and will likely take longer to lease up given the regression of leasing activity,” said Mehtab Randhawa, global head of industrial research, JLL. “As anticipated, the average asking rates rose 20.6 percent year-over-year to $9.19 per square foot. It is worth noting that demand for industrial product is still healthy, but users are taking more time when evaluating their decision-making process as well as executing deals.”

In particular, logistics networks are seeing greater opportunities to grab up space. Warehouses and distribution centers have a vacancy rate of 4.4 percent, a 50-basis-point (0.5-percentage-point) increase over the 3.9 percent rate in the fourth quarter of 2022.

The U.S. manufacturing industry is seeing 2 percent vacancy, up 0.1 percent from the prior quarter. “Special purpose” industrial real estate was the one category that had less room for new tenants at 2.1 percent vacancy, down from 2.3 percent.

The increase in vacancies comes as 620.5 million square feet of industrial real estate space is currently under construction nationwide.

2023 will close with the completion of nearly 90 percent of all sites currently under construction, which will increase the total industrial inventory across the country roughly 3.8 percent, according to JLL.

Denver, Dallas among highest vacancy rates

For companies seeking more space, Denver is a key area to watch—where the warehousing and manufacturing vacancy rate is at 7.8 percent. The market has experienced four consecutive quarters of increased vacancy, and JLL anticipates that projects under construction will expand the rate to 8 percent by the end of the year.

“Within the market, tenant requirements have been slashed in half,” the JLL report said. “Many occupiers are looking to make their operations more efficient and reduce overall footprint to save costs. In response, demand for space in the 20,000 to 50,000 square foot range has picked up.”

Overall, Denver has a 10.2 percent availability rate, the 12th highest out of the 53 markets analyzed.

To differentiate vacancy rate from availability, vacant space refers to all space not currently occupied by a tenant, regardless of any lease obligation that may be on the space.

Available space refers to any space that is available but does not specify if the space is vacant, occupied, available for sublease or available in the future. For example, a warehouse tenant could actively market their space for sublease while still occupying the space—thus making it not vacant. On the other hand, a distribution center could be under construction or going through a renovation, in which case the landlord could actively market the space for lease; making it both available and vacant.

The Dallas-Fort Worth area, currently 7.4 percent vacant, leads among new industrial real estate supply in every other metric studied—an indicator that supply has been outpacing demand. Since the first quarter of 2022, 60.4 million square feet of new real estate sites has been completed.

The Texas market currently has a 12.8 percent availability rate, the fifth-highest in the country.

But where Dallas-Fort Worth stands out is its net absorption, which amounts to roughly 8 million square feet in the year to date, far outpacing Houston’s 5.5 million square feet.

Absorption is the amount of space or units occupied within a market over a given period of time, typically one year. The metric considers both construction of new space and removal of existing space and/or units. In general, absorption represents the demand for a type of real estate contrasted with supply.

Currently, Dallas-Fort Worth, where Nike is developing a distribution center, is leading the way in both most industrial real estate under construction and highest year-to-date completions. The metropolitan area has roughly 63 million square feet of sites under construction, more than 20 million square feet more than the 41.9 million currently being built in No. 2, Phoenix.

Similarly, the region has 14.9 million square feet already completed in 2023, 5.5 million square feet more than the next market, California’s Inland Empire.

Rounding out the top five in U.S. vacancy rates is San Antonio, Texas (7.3 percent vacancy), Memphis, Tenn. (6.9 percent) and California’s Central Valley (6.8 percent).

Savannah, Ga., Orange County have least immediate space for rent

Across the real estate examined, Savannah, Ga. has the lowest vacancy rate in the country at 0.8 percent.

However, while the Georgia port city has remained below the 1 percent vacancy mark for five quarters in a row, it also has the second highest availability rate among all U.S. markets at 15 percent. The reason for this disparity is that all the new structures built in the past few years were almost entirely leased up prior to or directly after construction.

While availability of existing supply sits at 1.2 percent, availability of locations that are under construction is at 69.3 percent, or 17.5 million square feet made available.

Savannah remains well ahead of any other market when it comes to vacancy, with Orange County taking the second-lowest vacancy rate at 1.4 percent. Although total vacancy increased for the first time after two years of consistent declines, it remained at a historically low level.

Unlike Savannah, however, Orange County has the second-lowest availability rate as well at 2.9 percent.

The next lowest vacancy rates throughout the U.S. including Miami-Dade County, Fla. (1.6 percent vacancy), Hampton Roads, Va. (1.7 percent), New York City (1.8 percent) and Los Angeles (2 percent). Of those markets, Hampton Roads has the lowest total availability rate at 2.8 percent of industrial real estate in the region, while Los Angeles has the fifth-lowest at 4.3 percent.


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