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Industrial Sector Warehouse Rent Growth “Too Big For Its Britches”

Demand negatively surprised for the Industrial sector in 1Q24 for many reasons, but primarily for the warehouse inventory issues related to real retail sales drops. This is hardly good news for rent growth projections looking into the coming quarters – and likely into ’25. In fact, Green Street has adjusted our fundamental outlook for the Sector based on these factors and discussed them recently in our May Webinar: “Industrial: Tipping Point or Bump in the Road?” where we examined the downturn from previously record-breaking demand and rent growth.  

To understand what is currently happening in the warehouse space, we first need to look back a bit for a wider context. During COVID-19, we saw a massive spike in real retail sales due to the ecommerce trends in behavioral purchasing. Because of this, warehouse space became more important than ever – and more competitive to lock down. While demand spiked and supply struggled to keep up – we saw an unprecedented spike in rent growth that made sense for the economy of the time.  

But today we are looking at very different macroeconomic conditions. And now, real retail sales have declined back to ’21 levels. Which – to be clear – is not exceptionally low. ’21 was a banner year for real retail and was arguably the spark to the fire that led to the massive increase in brands picking up warehouse space.  

However, many of these companies factored in the need for warehouses to stock inventory into their business models and have not been able to adjust since. There has been a massive over-purchasing and over-building of industrial warehouses and a failure to hit the real retail sales necessary to maintain them.  

Essentially, the Industrial sector (as a whole) seems to have overinvested into the purchasing behaviors of the COVID-19 era and is now trying to adjust very quickly to new real retail trends. Retailers are carrying less inventory, consumers are purchasing less goods and focusing more on services, and overbuilding in the industry has left investors behind the curve dramatically. 

And now they’re struggling to catch up fast enough.  

Now, that’s not to say that there’s no way out of the hole that seems to have been dug for warehouse landlords. There are still several signal flags that show promise for the sector’s growth.  

For example, due to the ecommerce growth – there is still much opportunity for the warehouse needs of the sector to expand. In fact, online retail increased 8.6% in 1Q24 alone. eCommerce does require approximately 3X the footprint as traditional real retail, after all. And even though retailers are keeping their inventories cautiously low and warehouse employment continues to fall, import volumes have risen a whopping 19% YoY. This should increase even more given favorable changes in the Panama Canal 

With the above factors at play, and overbuilding across multiple markets, finding the right signal flags for the sector has never been more important. If you’re looking to find the right investment opportunities to act on, enter, or exit the market, it all depends on the research/data/news on which you rely.  

From Sales Comps, to CPPIs for the sector, and so much more, the Industrial sector is still catching up from the overcorrections to the COVID-19 retail shifts. And now it’s time to adjust back to reality.  

If you want to get access to the deeper insights, more signifiers of change within the sector, and the overall insights and projections for the coming months, be sure to request a sample report to learn more and download the full Industrial Update report straight from Green Street’s research library.  


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