Those looking to expand or relocate their manufacturing, fulfillment, or warehousing operation in the United States next year will find it a buyers-market!
A recently published report by the Los Angeles-based CBRE industrial real estate firm stated that significant expansion of industrial properties in 2019 along with a growing shift for regional fulfillment and warehousing in supply chain operations will expand opportunities for those in search of new or larger facilities.
In their report, US Outlook for 2020, CBRE highlighted multiple shifts with economic, construction, and industrial real estate that indicates the supply of available facilities far exceeds the demand – introducing a ripe opportunity for eCommerce, manufacturing, or distributors to expand or improve their facilities.
In fact, according to the report, one of the major indicators, as documented in the CBRE report, was that the supply of available facility space is 20 to 30 million square feet more than current demand. This represents nearly 0.2 percent of industrial inventory levels, which is the largest expansion since the 2008 recession. Additionally, with rental rates at historic lows, the time for relocation to larger or more modern facilities has never been more beneficial for businesses.
eCommerce Making a Huge Impact in Warehousing Availability
The increase in new industrial property construction projects during 2019’s economic spurt, combined with robust consumer spending with eCommerce shopping is contributing to the buyer’s market. According to the CBRE report, “despite some softening in the industrial & logistics (I&L) market, overall fundamentals will remain strong due to continued e-commerce penetration and demand for logistics space. Rent growth will be driven by newly constructed facilities and infill properties. Although there are trade-related risks, resilient consumer spending will buoy the I&L market and mitigate any tariff effects on major hubs relying on port activity.”
However, the report was not without warning of possible hurdles for business owners looking for new industrial space. As the economy is growing and eCommerce businesses continue to expand, the need to relocate is not as important as consistency. In fact, the report showed that higher-than-normal renewal rates, specifically in markets with the smallest percentage of vacancy, may lead to reduced potential for available space.
The report continued to state, “the market will remain stable as e-commerce penetration continues to impact supply chains. As operations become more complex for occupiers, there will be a heightened focus for outsourcing, paving the way for growth in the third-party logistics sector.”
The Outlook for Rent Gains in 2020
The CBRE also expected rent gains to increase as more modern facilities were completed. While the supply is outpacing demand, newer facilities with modern enhancements can justify the added rent.
The CBRE report indicated that rent for light-industrial warehouses have risen 30 percent over the past five years. Big-Box rental has increased 15 percent in the same time period and is expected to remain at that level through 2020 – even with limited space available in the market.