Warehouse Construction Reaches High Due to E-commerce Demand

Warehouse construction has reached unprecedented levels in the U.S. due to e-commerce demand, and conditions in many markets indicate that new supply can be leased up prior to construction completion or shortly thereafter, according to a new report from CBRE.

In-progress warehouse construction in the U.S. totaled 255 million sq. ft. at the end of this year’s first quarter. That running tally entered record territory in 2015 and has steadily climbed since then as companies raced to expand their e-commerce distribution networks for close proximity to as many customers as possible.

Slightly more than 70 percent of warehouse space now under construction is being built on speculation, meaning that developers started construction before securing occupants for their buildings. National metrics support that approach. The national vacancy rate for warehouses is a thin 4.4 percent as demand has dramatically exceeded new supply in recent years, pushing rents up by 19.2 percent since 2015.

“E-commerce continues to expand into additional sectors like grocery and furniture, creating demand for distribution space that supports additional construction,” said Chris Zubel, a Senior Managing Director leading CBRE’s representation of Industrial & Logistics investors in the Americas. “Conditions will vary by market, but e-commerce demand has created a fundamental shift in the warehouse sector.”

CBRE’s report identifies five top markets for spec warehouse construction that offer below-average vacancy rates and strong rent growth: California’s Inland Empire, Los Angeles, Seattle, Las Vegas and New York/Northern New Jersey.