By Amanda Marsh
Industrial remains one of the tightest commercial real estate sectors in the nation, with JLL reporting that the national vacancy rate dropped to 5.8% in the third quarter – despite 53 million sf of new construction being added during that same time period.
Los Angeles and Orange County remain the tightest markets with sub-2% vacancies, while port markets like Seattle and Miami experienced double-digit declines in vacancy. Total year-to-date absorption was up 10%, with 67.9 million sf leased versus 51.3 million sf of new deliveries. Nearly 18% of the leases signed were by new-to-market tenants, indicating companies are growing and discovering a new need for industrial space. If that remains the case, industrial vacancy will only become more difficult to come by.
Not only are developers and industrial tenants suffering from lack of space and land, but U.S. shippers are running out of space needed to maintain the supersized inventories that make e-commerce sales growth possible. The Journal of Commerce reports that as a result, they’re paying more to store the items, cutting into savings they’ve recently enjoyed in transportation costs due to lower fuel prices and excess truck capacity.
New Ideas to Maximize Industrial Space
Given such numbers, developers might consider going back to the drawing board to look at unique ways to add more space, especially in places where developable land is constrained.
One recent notable example is Prologis (NYSE:PLD), which told the Wall Street Journal that it is starting construction next year on a three-floor, 580,000 sf warehouse just outside downtown Seattle. Its unique features will include a truck ramp that leads to loading docks on the second level and a third level accessible via freight elevators for lighter-scale warehouse operations. The WSJ notes that it will be the first building of its kind in the U.S., although multi-story industrial buildings are already common in Asia and Europe. Prologis is also exploring similar construction in areas like New York, San Francisco, and Los Angeles.
Read the full article on SeekingAlpha.com here.