Aging US Warehouses Are Driving Record Development

Demand for new, modern warehouse construction is high. It has to be: CBRE reports that the average warehouse age is 43, so developers are building new facilities at record levels as the world manages the supply chain.

Construction activity in 2022, as of the end of the second quarter, totaled a record 627 million sq. ft.

CBRE’s report points out that one-quarter of existing warehouse space “is aged more than 50 years and most of that product tends to have a smaller footprint and lack the features, design and amenities required by modern distributors.

“In contrast, newer warehouses tend to measure larger than 200,000 sq. ft (often into the seven-digit sizes) and feature high ceiling heights, air conditioning, huge floorplans and cross-dock layouts to allow for fast unloading and reloading.”

John Morris, CBRE’s Americas president of industrial & logistics, said in prepared remarks that the warehouse sector has undergone more modernization other than many other asset classes in commercial real estate over the past 10 to 20 years.

Really, any space will do. Warehouses that are older than 40 are 95 percent occupied, CBRE reported.

Distribution Strategy Driving Changes

Brian Gallagher, Vice President, Corporate Development at Graycor, tells GlobeSt.com that changes in distribution strategy, consumer behavior and e-commerce and increased manufacturings are all driving distribution and warehouse construction.

“As a result, we are seeing an increase in investment in speculative warehouses. Much of the inventory under development is quickly being absorbed by retailers and third-party logistics companies.

Gallagher said that, traditionally, many warehouses were built with 20- to-24-foot ceilings and smaller footprints. Now many owners are developing much larger warehouses with 36- to 40-foot-high ceilings and cross-dock layouts.

“Major transportation corridors and port adjacent sites are continuing to attract warehouse and distribution investment. As demand for fast delivery accelerates, there is an increased demand for last-mile facilities located in or near urban centers, this is driving modernizations and renovations on older warehouse facilities and retrofitting, and repurposing buildings originally built for other uses.”

Gallagher said that another trend is the inclusion of technology into warehouse design.

“Warehouse buildings used to be facilities for shipping and receiving, but they’ve transformed into automated high-tech logistics facilities,” he said.

“Owners are increasingly incorporating sensors, automation, and robotics technology to track, handle and manage inventory, and increase productivity and safety while reducing overhead costs.

“Cold storage warehousing demand continues to grow as well. While more expensive to build, these cold storage facilities have unique and special requirements to meet the demands of the clients and specific product types.”

A ‘Safe’ Asset Class

Stephen D. Stein, co-founder/president capital markets, Tauro Capital Advisors, tells GlobeSt.com that he has seen a substantial increase of interest from equity sources looking to partner with seasoned developers, and borrower demand for acquisition financing has never been greater.

“This is an asset class that is perceived as safe with the prospect of long-term demand due to a shortage of inventory,” Stein said. “Geographically, the focus from equity and buyers is concentrated in the Sunbelt states and port cities which have experienced increased interest from a variety of tenants specifically those supporting the electric car market or bioscience.”