Bigger Not Always Better

Demand for well-located, small light-industrial properties—less than 120,000 sq. ft.—continues to outpace that for larger warehouses, largely driven by local economic activity, urban population growth and same-day delivery expectations of consumers.

Light-industrial properties account for more than half of total U.S. warehouse inventory. The availability rate for those between 70,000 and 120,000 sq. ft. has dropped by nearly 4 percentage points to 7.4% over the past five years. Consequently, their rents have climbed more than 30% to an average of $6.67 per sq. ft. By comparison, warehouses of more than 250,000 sq. ft. had rent growth of 16% over the same period.

New development has been extremely limited, with completions accounting for just 1% of total light-industrial warehouse inventory since 1990. This dearth is attributable to challenges in developing smaller parcels in densely populated areas, including competition with other uses and high land values.

Strong demand for smaller warehouse properties will continue as retailers and logistics operators expand their networks to increase their proximity to consumers. As such, rent growth likely will continue outpacing that of large bulk warehouses.

Industrial Warehouse Availability Rates by Building Size Segment

Source: CBRE Econometric Advisors, CBRE Research, Q2 2019

Industrial Warehouse Rent Growth by Building Size Segment

Note: TW rent index, which is an estimate of net effective rents, not to be confused with average asking net rents.
Source: CBRE Econometric Advisors, CBRE Research, Q2 2019

Construction Pipeline, Small vs. Large Warehouses

Note: Underway and planned as of Q2 2019.
Source: CBRE Econometric Advisors, CBRE Research, Q2 2019

By Matthew Walaszek, Associate Director, Industrial & Logistics Research, CBRE.

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