Anyone that leases warehouse space, knows how frothy markets have gotten. Rates and operating expenses will continue to rise for the foreseeable future. However, opportunity still exists to get a good deal that boosts your profitability and efficiency (see “Silver Lining” below).
- There is a relatively short window of opportunity on the horizon. Some facts that will give you a better sense of market conditions and drivers.
- Over 200 million SF of net positive absorption achieved nationally in 2020! This equates to 90% of the total positive demand witnessed over the average of the past three years (no slow down).
- As Amazon continues to lead the nation with its expansion record, its activity equates to 10% of the country’s total leasing volume for 2020. However, Amazon isn’t the only company with a voracious appetite for warehouse space. Other leading tenants that gobbled up space in 2020 included third-party logistics providers such as XPO Logistics and Geodis, general merchandisers such as Walmart and Target, home improvement retailers such as Lowe’s and Home Depot and discount retailers such as Big Lots.
- Developers are building space as fast as they can in an effort to catch up with super high demand. Well located, environmentally clean land is hard to come by. There is been a pretty steady trend in demolishing older, functionally obsolete buildings to make room for modern warehouses.
- Top 5 markets for distribution space construction/delivery in 2020 were (no surprises): #1 DFW, #2 Houston, #3 Chicago, #5 Atlanta. Rent growth was also very high in these markets.
- On average nationally, the pre-lease rate for newly constructed warehouse space is at 32.8%, with a few choice markets at near 100%.
- There will be a good “window of opportunity” for better deals for tenants between 2nd or 3rd quarter of 2021 and the 3rd or 4th quarter of 2022, driven by the temporary increase in supply.
- In addition, smart tenants can offset growing rents and expenses by boosting efficiency with better talent attraction and retention, increased cube space and decreased drayage costs via savvy site selection practices.
- The best way to maximize results, and ensure a good deal is to take a truly wholistic approach. Understand total costs and efficiencies as well as upcoming space deliveries that haven’t hit the market yet. Also incorporate the idea of solving business challenges (talent attraction & retention, efficiency, innovation, etc.) into your real estate strategy. While currently low vacancy rates can be intimidating, there is still a great deal to be had!