Warehouses such as e-commerce distribution centers are facing strain due to construction and construction surges. softening of demandis an emerging concern in a sector that has been the darling of commercial property owners for years.
The industrial real estate business was already doing well with the explosive growth of online shopping in 2020 when the Covid-19 pandemic led to nationwide lockdowns. A building boom that satisfies needs Percentage of retailers suddenly faced supply chain bottlenecks and increased e-commerce activity after many brick-and-mortar stores were temporarily closed.
Logistics developers completed and opened a record 148.2 million square feet of space in the third quarter, according to a commercial real estate services firm.
The company said it was about 72% above its quarterly average over the past five years.
This record amount of new warehouse supply is now hitting the market, but just mounting recession fears are slowing demand growth.
Online retailers see early signs industrial real estate faces potential oversupply
Spring said it was suppressed About e-commerce businessSince then, Amazon has closed, delayed openings or canceled plans for about 80 buildings in the United States, according to MWPVL International, a Canadian supply chain consultancy that tracks Amazon demand.
Other figures point to slowing growth in demand for warehouse space across the board. Warehouse tenants occupied about 108 million square feet more industrial space at the end of the third quarter than at the beginning, down from the previous quarter. According to Cushman & Wakefield, 132 million square feet of new space was occupied in the second quarter of 2021 and he said 159 million square feet in the third quarter.
“We’re going to see a world where new supply starts to outpace increased demand,” said Vince Tiborn, a senior analyst at real estate analytics firm Green Street. “Vacancy rates will rise in the next few quarters.”
Analysts and investors will keep an eye on Wednesday.
One of the world’s largest industrial space companies reports third quarter earnings. Mr Tibone said: “Are they planning to start a new project in the fourth quarter, or are they planning to be more conservative given the macro concerns?”
The decline in business travel since the outbreak of Covid-19 is hurting urban hotel owners, while the shift to remote work is putting pressure on office values.But until recently, industrial real estate almost got strength during a pandemic.
One of the reasons warehouse demand is waning is that a possible recession is making retailers, e-commerce companies and other tenants rethink their expansion plans. During a recession, “market funding and spending declines,” says Carolyn Salzer, Cushman’s director of American industry research. “People feel they don’t need to keep their warehouses so full.”
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Some analysts say the need for new warehouses and rents will remain strong next year, even with a recession. Many tenants continue to add logistics space to develop new supply he chains and expand their e-commerce businesses. This typically requires three times as much industrial space as he has in a brick-and-mortar store.
However, like most types of commercial real estate, industrial property values have been hit hard by rising interest rates. According to Green Street, there has been a 30% increase since the pandemic began, but a 19% decline since peaking in the first quarter of this year.
Meanwhile, shares in the industrial real estate investment trust rose 67% in the wake of the pandemic, but have fallen 27% since this spring when Amazon reported it was slowing expansion, said Green Street.
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