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Even as some analysts warn of warehouse overbuilding, the largest owner of logistics space in the world said in a new market analysis that companies' excess inventory is driving the need for far more warehouses than previously thought.
Prologis estimates that logistics users need 800M SF more warehouse space than previously thought as they grow their inventory, according to an analysis released last month.
The need for additional inventory is in part because of continued issues in the supply chain, according to Prologis' report, which is crimping retailers' abilities to keep shelves stocked. But it is also in response to a consumer spending pullback — retailers like Best Buy, Bed Bad & Beyond and Walmart are grappling with an excess of appliances, clothing and electronics inventories.
Walmart in particular recently slashed part of its quarterly and annual profit plans due to a backlog of inventory and warehouses not having available room for the foreseeable future. Industrial vacancy hit a record low nationwide at the end of 2021, according to JLL. Near ports, the vacancy rate is close to 1%, CNBC reported.
Prologis expects demand to rise for the remainder of 2022 and going into 2023, as 70% of the new supply it is constructing is already pre-leased. But some relief could be coming.
The U.S. construction pipeline of warehouses and distribution centers reached 699M SF in the second quarter of this year, up 112% over pre-pandemic levels and 177% above the 10-year average, according to Cushman & Wakefield.
Construction levels so far above historical norms are starting to concern some developers, even as Prologis expects excess inventory to fill up much of that new development.
“Just being in the business over the years, there appears to me to be too much product on the way relative even to historic demands,” Majestic Realty Co. Senior Vice President Stan Conway, whose firm has 11M SF of distribution space under development throughout the country, told Bisnow last month. “We're certainly keeping a close eye on new starts.”
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