Renewed rental contracts for warehousing report higher rental rates - WSJ

• CBRE Group’s report states that occupiers are leasing spaces at high rates to handle the increase in inventory requirements

• The rising demand for industrial real estate in Q3 brought down the vacancy rate to a record low of 3.6%

Rental rates for multiyear warehousing leases are rising sharply as real estate firms wish to incorporate the costs incurred during the pandemic in renewed contracts.

A report by real estate firm CBRE Group, first reported by Wall Street Journal, stated that that robust demand for space due to strong e-commerce sales and warehouse storage facilities has prompted owners to raise prices.

The report mentioned that “Occupiers are leasing space at unprecedented levels to handle the large increase in inventory requirements given the strong consumer demand. The need to keep more ‘safety stock’ onshore amid supply chain volatility has spurred additional demand for warehouse space.

Also Read: Port shutdowns amid delta variant’s spread weigh heavily on strained global supply chains

The demand for industrial real estate in the third quarter exceeded new supply by 41 million sq. ft., bringing the vacancy rate down to a record-low 3.6%. Investopedia defines the vacancy rate as a percentage of all available units in a rental property, that are vacant or unoccupied at a particular time.

WSJ reported that key distribution hubs like the Inland Empire in Southern California recorded an even lower vacancy rate of 0.7%.

The CBRE report also stated that the average asking rent increased by 3.1% quarter-over-quarter and 10.4% year-over-year to a record $8.92 per sq. ft. The rate hikes have been significantly higher in areas where the demand is more. 

WSJ reported that rents to replace leases expiring this year in central New Jersey, Philadelphia and the Inland Empire near the ports of Los Angeles and Long Beach were more than 60% higher than rates for leases that started in 2016.

Shippers are accepting the rising costs of warehouses near ports to enable faster deliveries. CBRE’s John Morris, who leads industrial and logistics at CBRE told WSJ that warehousing and logistics account for 4-6% of a company’s costs and there is not much that can be done to bring this down as the lessee needs the storage space.

Also Read: Maersk raises earnings forecast, sees no sign of ease in freight market

Picture Credits: Shutterstock