The leasing rates for warehouses across the U.S. have stabilized, offering more favorable deals than seen during the high-demand periods of the pandemic. Taylor Wood, a broker with Savills, observed a significant shift from the frenzied competition for industrial spaces during the pandemic. “It was an unprecedented market; bids were fiercely competitive for every available building,” Wood recalled.
Currently, there’s a noticeable decrease in rents, particularly in major logistic hubs like Southern California, which had previously seen intense demand. Despite warehouse owners’ hesitations to publicly lower their asking prices, concessions and better leasing terms are becoming more common. “We’re now seeing incentives like delayed start dates, substantial periods of free rent, and increased budgets for tenant improvements,” Wood noted.
Reports from real estate firms including Cushman & Wakefield and Savills highlight that the urgency to secure storage space has diminished, leading to a plateau in leasing rates. For the first time in four years, the average asking rent for industrial real estate did not rise quarter over quarter, maintaining at $9.73 per square foot per year, as per Cushman’s latest data.
In areas like California’s Inland Empire, a key industrial region, rents have declined by 2.7% in early stages of the year. Mark Russo, head of industrial research at Savills, pointed out that effective rents are even lower than advertised due to the increased frequency of discounts and offers from landlords.
The shift comes as more warehouse space becomes available, contrasting sharply with the limited availability during the pandemic’s peak. “The intense need for companies to secure space has largely dissipated,” Russo explained.
Nationally, the warehouse vacancy rate has risen slightly to 5.8%, still low historically but noticeably up from a low of 3% at the end of 2022. During the pandemic, companies like Amazon aggressively expanded their storage capacities to meet soaring demand, leading to a significant construction boom in warehouse space.
However, as of mid-2022, companies have been cautious with inventory restocking due to high interest rates and an uncertain retail environment. Dustin Burke, from the Boston Consulting Group, remarked, “Companies are adopting a more balanced and long-term perspective in their operational strategies.”
Retailers have also seen a reduction in inventory-to-sales ratios, moving closer to pre-pandemic levels, suggesting a stabilization in the demand for warehouse space. “We can anticipate a return to more typical rental and growth patterns in the warehouse sector,” Burke added.
Despite the recent stabilization, warehouse rents remain significantly higher than pre-pandemic levels, with the average asking rent up 53% from the first quarter of 2020. The influx of newly constructed space, initially spurred by high demand, continues to influence market conditions, introducing significant new capacity and contributing to the downward pressure on rents.
