Warehouse space nationwide is getting harder to find, if that’s possible, even as rent for it continues to rise.
U.S. industrial market vacancy dropped to a 27-year low of 4.2 percent last quarter, according to a report released Monday by the commercial real estate services firm Savills.
Asking rents for industrial real estate nationwide rose year-over-year by almost 9 percent during the first three months of 2022, continuing a trend of rising costs in response to limited availability.
The tightest major markets were Southern California and Northern New Jersey with 1.6 percent and 2.5 percent vacancy, respectively. Both markets also saw the highest year-over-year rent increases: almost 19 percent in Southern California and 16 percent in Northern New Jersey.
Only 3.8 percent of industrial space in South Florida was unoccupied in the quarter, while rent climbed by almost 16 percent from the same period last year.
Only 6 percent of warehouses and distribution centers in Dallas-Fort Worth were vacant. Chicago and Houston both saw vacancy decline to 6.8 percent.
Asking rents for industrial real estate in Chicago climbed year-over-year by a hefty 11.8 percent. Houston and Dallas-Fort Worth saw rental price upticks of 8.6 percent and 5.9 percent, respectively.
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In response to rising demand, developers have been busy adding industrial space. Approximately 750 million square feet is under construction, up from 507 million a year ago.
Savills’ analysis of the industrial real estate market shows a continuing trend of rental space becoming less available and asking prices rising. In 2021, vacancy plummeted to 4.4 percent and asking rents gained 8 percent.
Among major markets, Southern California and Northern New Jersey had the least available space at the end of last year and the highest annual rent increases. Chicago and South Florida were not far behind.
Industry leaders have attributed the spike in industrial real estate to consumers’ buying more products online and internet retailers’ efforts to deliver orders ever faster. Many industrial projects are now pre-leased before even being built.
But in a sign that the market will cool, e-commerce sales have slowed down in recent quarters since peaking earlier in the pandemic, the report found. And market mover Amazon said last week that it has halted future warehouse deals after spending billions in recent years to double its portfolio of fulfillment and distribution centers.
The tech giant said that excess industrial space cost the company about $2 billion in the first quarter this year.
In response to rising rents, some e-commerce distribution companies, including Amazon, have pivoted from leasing to purchasing facilities. The company doubled its real estate holdings last year, expanding its owned portfolio to 16.7 million square feet across North America.