June 20, 2019

CBRE: Warehouse construction rates continue boom in first quarter

More than 70 percent of DC space being built on spec as e-commerce firms seek sites near consumers.

By DC Velocity Staff

Warehouse construction rates in the U.S. continued their record boom in the first quarter of 2019, extending a trend of tight vacancy rates and rising rents as e-commerce retailers search for sites located close to consumers, a report said today.

E-commerce volumes are driving so much demand for new DCs that slightly more than 70 percent of warehouse space now under construction is being built on speculation, meaning that developers started construction before securing occupants for their buildings, according to the report from commercial real estate giant CBRE.

While that strategy may sound risky, the national vacancy rate for warehouses is a thin 4.4 percent as demand has dramatically exceeded new supply in recent years, pushing rents up by 19.2 percent since 2015, Los Angeles-based CBRE said.

According to the report, "Demand Continues to Outpace New Warehouse Construction," the top five markets for spec warehouse construction that offer below-average vacancy rates and strong rent growth are: California's Inland Empire, Los Angeles, Seattle, Las Vegas, and New York/Northern New Jersey.

In all, in-progress warehouse construction in the U.S. totaled 255 million square feet at the end of this year's first quarter. That running tally entered record territory in 2015 and has steadily climbed since then as companies raced to expand their e-commerce distribution networks for close proximity to as many customers as possible, the firm said.

?"E-commerce continues to expand into additional sectors like grocery and furniture, creating demand for distribution space that supports additional construction," Chris Zubel, a senior managing director leading CBRE's representation of Industrial & Logistics investors in the Americas, said in a release. "Conditions will vary by market, but e-commerce demand has created a fundamental shift in the warehouse sector."?

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