Warehouse Development Hitting Peak Levels

Warehouse development on the West Coast is at its highest level in decades. A new report from CBRE shows there is currently 57.7 million square feet of warehouse development in eight top West Coast markets. The activity accounts for 40% of total warehouse development among the top 20 industrial markets in the country. Ecommerce—including retailers, wholesalers and third-party logistics companies—are driving the increased demand for warehouse space.

“Many West Coast markets are close to a deep water port and a gigantic population base with consumers that buy lots of product, making for a deep and diverse business economy,” Kurt Strasmann, executive managing director at CBRE, tells GlobeSt.com. “As a result, West Coast markets, particularly the Inland Empire, have become the nation’s leader in development. In addition, most of these West Coast regions were never overbuilt and thus vacancy levels have been among the lowest in the nation.”

The Inland Empire is the most active development hub in the West Coast, accounting for 34% of the total warehouse development. It is also the top market for warehouse construction in the US. Los Angeles, Las Vegas, San Francisco Bay Area, Salt Lake City and Seattle are the other top markets for warehouse construction on the West Coast.

Among all of this development activity, most is speculative. “Nearly 75% of the current West Coast development is speculative due to developers’ confidence in demand levels across all markets,” Jamil Harkness senior industrial analyst at CBRE, tells GlobeSt.com. “Both spec and build-to-suit have been exceptionally strong, and we expect this to continue for the foreseeable future, the next 12 to 18 months.”

While the warehouse development is largely for logistic-related uses, cold storage has also become a significant driver of development. “The bulk of all development has been warehouse and logistic-related product due to the emergence of e-commerce over the last 10 years,” says Harkness. “Now cold storage is prime to drive even more warehouse demand and development. Big box has dominated, but now we are seeing the emergence of light industrial, in key infill markets for the purpose of last-mile/parcel delivery.  In markets like Seattle, L.A. and the San Francisco Bay Area light industrial development is steady due to demand for users looking for quality last-mile light industrial facilities. Comparatively, manufacturing facilities still only represent a small fraction of development activity.”