Around the globe warehousing capacity remains in tight supply, largely thanks to the relentless rise in e-commerce. The sector’s seemingly unstoppable expansion has also driven strong demand for smaller warehouses, chiefly to serve as final-mile distribution centres.
Avison Young’s Spring 2019 Global Industrial Market Report, which was released in September, indicates single-digit vacancy rates in nearly all industrial markets on the planet. In more than half of them, vacancy rates were either flat or lower than last year.
Avison Young’s analysts identified e-commerce as the main driver of the ongoing scramble for warehouse capacity.
“E-commerce logistics, distribution and warehousing requirements continue to drive the market and are increasing in line with online retail sales,” said Avison Young chairman Mark Rose. “This strong demand has driven down supply, with developers increasingly becoming more innovative in regard to maximizing value through the repurposing of obsolete assets such as vacant big-box retail stores and aged office buildings, as well as exploring multi-storey facilities in a growing trend that caters to demand for close-in warehousing and distribution.”
In the US market, where the vacancy rate was flat at 5%, the largest e-commerce players are driving demand for fully automated distribution centres. In land-constrained metropolitan centres, vacant commercial facilities are increasingly redeveloped into warehousing space, according to Avison Young.
In Singapore e-commerce and logistics accounted for 44% of warehouse occupancy in 2018, according to a report from real estate service provider and investment management firm Colliers International. Manufacturing was next with a share of 30% of the 117 million sq ft of warehouse space in the city-state.
A recent report from CBRE, the world’s largest commercial real estate services and investment firm, points to e-commerce companies looking for warehouses near consumers for rapid last mile delivery and logistics firms wanting facilities near urban ports as the main reasons behind the tight warehouse supply situation. Its researchers have found that small warehouses with less than 12,000 sq ft of floor space are in particularly high demand.
Availability of this type of warehouse has sunk to 7.1%, and rents in this bracket have climbed 33.7%, whereas rents for warehouses of 250,000 sq ft or more went up 16%, CBRE’s researchers found.
Small warehouses make up more than half of the total supply in the US.
CBRE found that the highest demand for these facilities is in highly populated areas.
Many are situated in infill locations, where cost is higher and available space scant, but the economics of reaching relatively high numbers of consumers within a short radius compensate for the cost.
E-commerce will continue to drive warehouse demand. Research on industrial real estate published in July by Deloitte points to an expected growth rate of 15% for e-commerce this year, and most pundits predict double-digit growth rates for years to come. Deloitte warned that facility development will lag this growth, further exacerbating scant supply and rising prices.
Its analysts expect the momentum of warehouse development to slow, due to mounting costs, strong competition, rising interest rates and increasing cost of capital.
Likewise, Colliers expects warehouse construction in Singapore to shift down a gear. After 7.6% average annual growth in the 2014-2018 period, it predicts a slowdown to 1.5% annual expansion in the 2019-2023 period. This should stabilize the overall vacancy rate around 10.8%.
Capacity constraints will likely be most pronounced in cold storage facilities, which are expanding at a slower rate than general warehouses, owing to higher costs and longer construction periods. CBRE estimates that an additional 100 million sq ft of cold storage is needed to meet projected demand growth in online grocery sales through 2022.
By Ian Putzger
Air Freight Correspondent | Toronto