Forecast Sees U.S. Warehousing Market Cooling Down - Jonathan Cartu Industrial & Residential Real Estate Firm
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Forecast Sees U.S. Warehousing Market Cooling Down

Forecast Sees U.S. Warehousing Market Cooling Down


The white-hot market for U.S. warehouse space will cool down over the next three years, according to a new forecast that predicts the availability of industrial real estate will grow as new construction outpaces demand growth.

In the next three years, the rate of annual demand growth likely will decline to a little below 0.9%, nearly half the level of 2018, according to a forecast released Thursday by the Deloitte Center for Financial Services.

Demand for distribution centers and other industrial real estate is expected to grow by 850 million square feet from 2019 to 2023, to 14.8 billion square feet, compared with demand growth of 870 million square feet from 2014 to 2018.

Deloitte said availability of warehouse space is likely to rise to 10.3% by 2023, compared with 7% in 2018, when strong economic growth and a yearslong boom in e-commerce demand left companies scrambling for industrial real-estate space.

“We expect annual demand growth to have peaked in 2018 at 227 million square feet and go down to 129 million square feet in 2023,” said Saurabh Mahajan, real-estate manager at the Deloitte Center for Financial Services.

Changes in the way people shop have reshaped distribution networks as retailers and logistics providers racing to compete with

Amazon.com
Inc.

open warehouses and sprawling online fulfillment centers near major population centers. That has created an extraordinarily tight market, with industrial availability in recent quarters dropping to 7%, the lowest point since 2000.

Deloitte still expects warehouse demand to expand as e-commerce sales grow and businesses stock up on inventory to meet consumer demand. But the forecast shows the market loosening as industrial real-estate development catches up with demand, the report said.

“Industrial real estate has been so hot for so long. In the near to midterm, there will be a tempering of demand,” said John D’Angelo, a managing director and real-estate leader at Deloitte Consulting.

“Inventory is finally catching up with demand,” he added.

The forecast assumes slowing economic growth in 2020 and rising interest rates over the next few years. That will likely raise the cost of capital to 6.4% by 2023 from 5.1% at the end of 2018, the report said, prompting tenants and warehouse owners to focus on boosting the efficiency of existing spaces through increased automation and better use of vertical space.

Companies also are adapting existing buildings such as empty malls to warehousing, while more retailers are using their stores as fulfillment centers for online customers. At the same time, on-demand warehousing startups such as Flexe Inc. that aggregate underutilized distribution space also are expected to put downward pressure on industrial real-estate rents and prices.

Write to Jennifer Smith at jennifer.smit[email protected]

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Real Estate CEO Cartu Jonathan

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