According to a recent Prologis report on the first half of 2016, absorption of warehouse and distribution facilities is expected to exceed the delivery of new space for the remainder of the year.
Booming growth in e-commerce fulfillment is the driving force behind 15 to 20 percent of the demand for fulfillment space, but it’s worth noting that traditional brick and mortar retailers are still dominating the market for industrial space.
Several trends have converged that are driving the demand for industrial space. Occupiers of industrial space are reconfiguring their supply chains for efficiency. E-commerce fulfillment requires about threes times the space of traditional distribution. Many e-commerce retailers have located all their distribution needs to one facility, but they are outgrowing their buildings and moving to larger ones. Others have found it more efficient to add buildings, such as placing an intermediate facility between the primary distribution and the consuming market.
Even though the strong dollar has hurt the export of manufactured goods, manufacturing industry customers are reporting improvement in activity levels. Job growth and an increase in retail sales are forcing a number of retailers into larger facilities. And finally, because supply is tight, shippers are moving quickly to occupy space rather than risk being shut out. Anyone looking for industrial space is not going to fool around and waste time when the right property turns up.
Tight inventories are forecast for next year as well. Because it’s expected that new space will lag behind demand and the market will remain tight, rents will continue rise. And, despite the rapid growth in e-commerce in recent years, it’s still in the early innings. All things given, continued rapid expansion is likely.
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