Demand for Warehouse Space Is Way Up, Driven by Growth of E-Commerce

After six years of rent gains and more than seven years of a steadily falling U.S. vacancy rate, there is a “voracious appetite for industrial real estate,” according to a new report from Transwestern.

Demand for warehouse space in proximity to households is driving the sector as e-commerce’s growing impact extends well beyond brick-and-mortar retail.

“The transportation, logistics and distribution industry continues to be a primary market driver throughout the country,” says Matthew Dolly, director of research for Transwestern. “The industrial market is working overtime to keep up with consumer demand and the growing impact of e-commerce.”

The market ended the quarter with an average asking rental rate of $6.27 per square foot, reflecting annual rent growth of 10.5%.

Vacancy closed the quarter at 4.7%.

Overall, 41 of the 48 Transwestern reporting markets posted positive quarterly absorption, leading to a total of 62.4 million square feet absorbed nationally.

“Although annualized absorption is beginning to trend down, the overall outlook for the sector remains bullish, with 80% of our markets posting an increase in asking rental rates,” says Stuart Showers, director of research. “Rents are unlikely to flatten until deliveries outpace demand. And while some investors could retreat from asset prices they believe are nearing a peak in primary industrial markets, there are plenty of opportunities in secondary markets to keep investment strong.”

Further support of the sector’s strength is a construction pipeline with more than 300 million square feet nationwide.