New warehouse construction across North America is expected to outstrip demand over this year and next, according to a new report that suggests a yearslong boom in industrial space fed by e-commerce growth may be shifting in favor of tenants.
Developers are expected to deliver about 301 million square feet of new warehouse space in the U.S., Canada and Mexico this year, while tenants will lease about 242 million square feet, according to a new report from
PLC.
The real-estate firm projects builders will deliver another 272 million square feet in 2021, outpacing projected demand of 218 million square feet.
Industrial developers have been relatively restrained in adding supply since the last recession ended in 2009. Many were wary of adding so-called speculative properties without tenants lined up in advance and didn’t want to risk losses if the market couldn’t absorb new properties. At the same time, a gaggle of tenants focused on online retail sales, from existing retailers to the fast-growing logistics operations of
Amazon.com Inc.,
began eating up space for fulfillment warehouses and distribution centers.
Tight space has driven down vacancy rates and driven up rental prices, but companies said last year that the industrial real-estate market was getting closer to a balance between supply and demand.
Cushman & Wakefield said in its report that builders added more space in North America in 2019 than tenants could take on, the first time since 2009 that has happened.
“Overbuilding is definitely something we need to keep an eye on,” said Carolyn Salzer, the head of logistics and industrial research for the Americas at Cushman & Wakefield.
The changing balance in the marketplace should make it a bit easier for tenants to bargain on rents, although she added that landlords will retain will retain much of the leverage.
Space remains tight by historical standards. Vacancy rates are forecast to rise to 5.2% by the end of 2021 from 4.6% at the end of last year, according to Cushman’s forecast. That would remain below the average 6.2% vacancy rate over the period from 2011 to 2021.
The company expects asking rents to rise to $6.95 a square foot by the end of 2021 from $6.51 a square foot as of the end of last year.
Some landlords have pointed to constraints on adding many new properties.
“Higher replacement costs, land scarcity and elongated permitting remain governors to supply,”
Thomas Olinger,
the finance chief at
Prologis Inc.,
the biggest owner and developer of industrial real estate in the U.S., told analysts on a call Wednesday about the company’s fourth-quarter results.
Prologis expects its portfolio of properties across the U.S., Europe and other regions will end 2020 96% to 97% occupied. The company has said it is looking to boost rents as leases expire.
Some U.S. markets such as Seattle and San Francisco remain extremely tight, Prologis Chief Executive
Hamid Moghadam
said in an interview, giving customers looking for warehouse space fewer opportunities to rent.
“We’ve had 10 years of demand exceeding supply,” Mr. Moghadam said. “Demand is actually constrained in many cases because of the unavailability of space.”
Write to Micah Maidenberg at [email protected]
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