Problems in the logistics ecosystem have been compounded by the shift from a just-in-time inventory model to a just in-case strategy, which aims to cut the odds that a product will sell out of stock. One benefit has been an unprecedented demand for warehouse and distribution space. More than 400 million square feet of industrial space was expected to be absorbed in 2022, according to the NAIOP Research Foundation.
That has created an enormous windfall for investors and owners of warehouse and distribution facilities—and for the commercial real estate industry. Average rents nationally for industrial properties soared to $8.82 per square foot in 2021’s fourth quarter and were expected to keep rising, according to Newmark research.
“We’ve never had a vacancy rate this low, and we’ve never built so much.”
—16-year veteran Amy Ogden, SIOR, executive vice president, Logic Commercial Real Estate, Las Vegas
Shortages Feed Construction Boom
With increased demand and vacancy hovering around 4% nationally—half that in many markets—construction of industrial assets was at record levels across the U.S., Newmark reported. Evidence of the boom:
- Shipping container traffic is being rerouted from the West Coast to the East Coast, where warehouse construction in port cities like Savannah, Ga., and Charleston, S.C., is exploding.
- Inland markets like Las Vegas are seeing construction surges. In Southern Nevada, development is underway for 6 million square feet of new industrial space, mostly warehouse.
- Overwhelmed port terminals are ramping up collection of charges related to failure to load or discharge ships in the time agreed upon. Companies are redirecting the freight to other ports, hiring third-party logistics, putting freight in containers, or leaving it in trailer yards in rural areas.
Adapted from “Supply Chain Challenges Help Spur Industrial Construction Boom,” by Michael Hoban, published in the Summer 2022 issue of SIOR Report. Hoban is founder of Boston-based Hoban Communications.