Pre-Leases For Warehouse Space Under Construction Reaches New Highs
The booming industrial market is breaking records left and right.
The sector recorded its 28th consecutive quarter of net occupancy gains as of Q1; warehouse development pipelines hit new highs in the same quarter, spurred by demand for more modern Class-A facilities; and more recently, about half of the 167M SF of warehouse supply under construction has been pre-leased — a 10-year high.
CBRE Americas head of industrial research David Egan said this level of pre-leasing activity suggests users are still very active. Warehouse supply has yet to exceed demand, and the growing prevalence of online shopping and same-day delivery is forcing users to open facilities closer to customers.
"We've been getting some questions about the length and duration of this cycle — are things going down or is everything proceeding as normal?" Egan said. "This level [of pre-commitments] suggest two things: user demand is still strong even though we're several years into the cycle, and second ... because over half the space built is pre-occupied, the likelihood of a sudden supply-demand imbalance is going to be low."
New warehouse lease pre-commitments have reached highs not experienced since 2000, CBRE reports. Of the 167M SF under construction, 72M SF has been pre-leased — that is 43% of space still being developed that is already signed to primarily e-commerce, third-party logistics and retail users. These pre-commitment levels exceed the historic 17-year average by 38%.
The top 10 markets with the most warehouse space under construction include Denver, Kansas City, Chicago and Indianapolis. In Denver, 70.3% of the space under construction is pre-leased, followed by 54% in Kansas City, 51.3% in Chicago, 50.6% in Indianapolis and 43.4% in New Jersey.
"Warehouse users are aggressively leasing space as soon as they have the opportunity...," Egan said. "Warehouse development is at its highest level since 2000. Yet brisk development activity continues to lag demand, and given users' pressing need for modern facilities and the lack of adequate space, there is no slowdown in sight for new warehouse leasing."