Warehouse Rents Surge on Bidding Wars for Scarce Space

In the U.S. warehouse rents surge as companies jockey for scarce distribution space to meet surging e-commerce demand.

The competition is driving up industrial rents as retailers and logistics providers race to move goods closer to population centres, with some engaging in bidding wars for the most coveted sites. Businesses are pushing to deliver online orders faster to the homes of digital shoppers and responding to growing consumer spending that is helping drive an economic rebound.

Demand for industrial real estate is so strong that taking rents—the initial base rent agreed on by a landlord and tenant—are rising faster than asking rents, according to real-estate firm CBRE Group Inc. Industrial taking rents were up 9.7% in the first five months of 2021 compared with the same period last year, while industrial asking rents rose 7.1%, according to CBRE, which tracks 58 U.S. markets.

Prices are rising at a particularly strong rate for commercial cargo space near ports and cities, and for big-box warehouses such as those used by Amazon fulfilment services. First-year base rents in Northern New Jersey jumped by a third year-over-year through May, while those in Southern California’s Inland Empire rose 24.1%, according to CBRE. Taking rents for project and bulk cargo warehouse space of 500,000 or more square feet increased 13.2% from the same period in 2020.

“It’s creating a situation similar to the housing market, where there’s limited supply and multiple bidders,” said James Breeze, senior director and global head of industrial and logistics research for CBRE. “There’s just a few viable options and occupiers really want those options, and they’re willing to pay more for them because they’re so strategically important.”

“In every area where we locked up land, now people are fighting to get into those areas, Amazon included,” said Treetop co-founder and managing member Azi Mandel. “For people to get their toilet paper the next day…you need more warehousing space.”

Warehousing Australia, In Sydney the industrial and logistics market is now the tightest in Australia, with the vacancy rate sitting at 1.40 per cent after halving over a six-month period. Behind Melbourne and Brisbane in the second half of 2020 with a 2.79 per cent vacancy, Sydney moved to the top of the order across the six months from the fourth quarter 2020 and the first three months of 2021, according to new CBRE data. Melbourne’s vacancy rate fell from 2.55 per cent to 1.55 per cent across the same period.

“Strong consumer demand, massive infrastructure projects and accelerated e-commerce adoption have all contributed to a first quarter boom in the NSW industrial market,” Michael O’Neill, CBRE’s western Sydney managing director, industrial & logistics, said.

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