Demand for E-Commerce Centers Stokes Logistics Rents

Steve Berger says the DFW area has demand for warehousing space driven by e-commerce.

DALLAS—Voracious global demand for e-commerce fulfillment centers and distribution centers fueled a 2.8% year-over-year increase in prime logistics rents globally, led by double-digit percentage gains in US coastal markets, according to CBRE Group Inc. ‘s inaugural global prime logistics rents report. Six of the top 10 markets with the fastest growing prime logistics rents globally were in the US, led by Oakland, CA, with a nearly 30% gain. Despite the high cost, the desire for quality premises is the dominant factor for inner-bay logistics users in that location. American seaports and inland ports aren’t among the world’s most expensive for logistics rents, but there were the largest gains in those areas in 2015, due mostly to the increasing flow of goods into and throughout the region from online sales. In addition to Oakland in the number one spot, US cities in the top 10 for fastest-growing prime logistics rents include New Jersey at number two, the Inland Empire/Southern California at number three; Los Angeles-Orange County at number seven; Dallas Fort Worth at number eight, also with 8% annual percentage change, and Atlanta at number nine, says CBRE Research (fourth quarter 2015). The other two for rent increases are in Santiago, Chile, and Ciudad Juárez, Mexico. Steve Berger , senior vice president, CBRE, advisory and transaction services tells GlobeSt.com: “The Dallas/Fort Worth area is experiencing robust demand for warehousing space driven by e-commerce as well as the strong organic growth associated with our population and jobs growth. Most of that demand in this tight market is being met by delivery of new construction. Users are also demanding higher quality and capability out of these new facilities. With those improvements, come higher associated costs. While rental rates are growing, the overall cost of occupancy in this area is still among the lowest of any major market in the world.” The sharp rise in prime rents in the Americas was largely due to massive growth in US coastal markets, where occupier demand drove up pricing. Much of the upward pressure in rents in logistics markets in the Americas and globally is stoked by a supply chain arms race of sorts among retailers, shippers and suppliers seeking to accommodate the continued growth of e-commerce. In heavy demand are modern distribution centers and fulfillment centers with features such as a high loading dock ratio and clear ceiling heights of at least 26 feet to accommodate high-tech stacking racks and automated storage-and-retrieval systems. Many such facilities are being built close to large population centers, where land costs are high, says CBRE. “Global consumer demand is strong, and an ever-increasing share of retail sales is taking place online,” said Richard Barkham , CBRE’s global chief economist. “That is prompting traditional retailers, e-commerce companies and third-party logistics firms to seek out advanced ‘prime’ logistics warehouses to modernize their supply chains and thus facilitate the rapid delivery of goods.” Overall, growth in prime logistics rents in the Americas last year (up 5.6%) outpaced that in Asia (up 2.5%) and in Europe, the Middle East and Africa (up 0.8%), according to the CBRE report. Prime rents are the highest achievable rents for a logistics facility of the highest quality and specification. “E-commerce demand is acute in the Americas, and rent in the US is growing from a relatively low base given the abundance of developable land here,” said David Egan , CBRE’s head of industrial and logistics research in the Americas. “Developers are building and delivering more logistics buildings, but that new supply can’t keep up with demand. Therefore, industrial occupiers should expect to see rents rising for a while longer.” Still, American logistics markets have a lot of ground to make up to rank among the world’s most expensive. That distinction goes to densely populated markets with higher land costs. Last year’s most expensive markets were led by Hong Kong with an annual prime rent of $28.94 per square foot per annum, Tokyo ($16.74), London ($16.36), Singapore ($10.91) and Stockholm ($9.90), says CBRE. The most expensive market in the Americas was Los Angeles-Orange County, ranked 12th globally at $8.04 per square foot per annum.