Demand for warehouse space will push rents up another 22% this year, Prologis reported.
Despite Amazon’s planned pullback on new warehouse growth, rampant demand for industrial space, as well as supply chain delays, has reduced the available inventory of warehouses to historic lows, according to a new report from global industrial powerhouse Prologis.
At current rates of supply and demand, logistics tenants could burn through available inventory in 16 months, according to Prologis, a record-low benchmark for inventory.
“That may sound like a long time, but prior to 2021, that rate has never dipped below 32 months,” Prologis head of U.S. research Heather Belfor said during a webinar Tuesday. “This is by far the shortest time in history.”
The market continues to tighten even as construction has taken off — 375M SF of new distribution space is expected to come online in the U.S. this year, according to Prologis. But competition for space and supply chain issues have sped up rent increases, according to Prologis, which found industrial rents grew 8.5% between Q4 2021 and Q1 2022. Construction deliveries came in lower than expected, driving vacancy down to 3.2%, a new record low.
The sluggish pace of delivery has driven Prologis to increase its projection for 2022 rent growth, up to 22%.
Consumer shopping habits also are fueling warehouse demand: For every percent shift in retail sales from stores to online, retailers need 50M SF of new distribution space, Belfor said. Last year, U.S. consumers spent $885B online, according to software giant Adobe. This year, that number is expected to reach $1T for the first time, Adobe reported in March.
The average asking rent in the U.S. was $7.62 per SF in Q1, according to JLL. In February, Amazon Chief Financial Officer Brian Olsavsky said on an earnings call that the company — a major catalyst for the rapid expansion of the global industrial footprint since the start of the pandemic — would taper off the growth of its physical warehouse investments in 2022. But Prologis researchers said that will have little impact on the overall demand for space this year.
“The overarching theme here is that logistics real estate leasing conditions are in uncharted territory around the globe,” Prologis Global Head of Research Melinda McLaughlin said during the webinar; Europe has only six months of supply, according to the report. “The rapid pace of structural change in consumer habits and inventory patterns has led to pent-up demand for space that cannot be expressed in existing stock due to low vacancy or as easily in new developments due to supply chain delays that are keeping projects stuck in the construction pipeline.”