CBRE: E-Commerce Pushes Industrial Availability To 25th Quarterly Decline

Industrial space availability declined for the 25th consecutive quarter–the longest streak on record–as e-commerce continued to fuel warehouse demand, reported CBRE Group, Los Angeles.

Industrial availability–space available for tenant build-out within 12 months–declined to 8.8 percent in the second quarter, down 20 basis points from the prior quarter, to reach its lowest level since second-quarter 2001, CBRE reported. Of the 57 major markets that CBRE tracks, 37 registered availability rate declines in the second quarter, a slight gain from the 35 markets that did so in the first.

The Commerce Department said e-commerce saw double-digit growth last year for the sixth consecutive year. E-commerce sales grew 14.6 percent during 2015 to reach $341.7 billion. 

CBRE Chief Economist for the Americas Jeffrey Havsy predicted “robust” demand from e-commerce users building out their North American distribution networks will continue to push increases in lease rates this year and spur additional construction. 

CBRE said it expects that developers will complete roughly the same amount of industrial space in those 57 markets this year that they did last year–150.5 million square feet. But even that healthy figure falls well short of the 10-year high of 213.5 million delivered in 2006. 

“While we’ve had some shocks to the global economy, the U.S. economy still is moving along at a slow and steady space, and that will sustain industrial demand,” Havsy said. “Retail sales have been above expectations, posting pretty strong gains in April and May. That will help both the retail and industrial sectors.”

In addition, growing e-commerce has pushed industrial availability to unusual lows as demand grows for facilities to handle uses such as same-day delivery fulfillment and what CBRE calls “reverse logistics”–handling e-commerce returns. 

The U.S. dollar’s strength relative to other currencies should continue to increase U.S. imports, CBRE said, which in turn should drive additional demand for industrial space.

CBRE said 13 of the 57 markets it tracks posted increasing space availability, due mostly to newly constructed buildings not yet leased. Markets that gained availability compared to a year earlier include Houston, Cincinnati, Denver, Minneapolis, California’s Inland Empire, South Central Pennsylvania, Cleveland and Honolulu.

Several markets registered significant availability rate declines from a year earlier, including West Palm Beach (down 290 basis points), Newark (down 270 basis points), Memphis (down 270 basis points), Tampa (down 250 basis points), Jacksonville (down 250 basis points) and Detroit (down 250 basis points).

Looking ahead, Havsy said demand could slow a bit and supply could continue to ramp up. “Vacancy will bottom out this year and then start to slowly rise,” he said. “But industrial will remain one of the best-performing asset classes in commercial real estate for a long time.”