Why Warehouse Rents Keep Going Up While Demand Is Dropping

livemint.com:

Warehouse rental prices across the U.S. have never been as high as they were in the second quarter, when the average asking rent for industrial space reached $9.59 a square foot.

That was 16.1% higher than the same period last year, said commercial real-estate services firm Cushman & Wakefield, and extended a four-year run of rising leasing costs that has pushed the price of warehouse space up 50% since the spring of 2020, when exploding consumer demand driven by the pandemic sent the market for warehouses skyrocketing. In some markets, rents are rising even faster.

The average asking rent in the Tampa Bay, Fla., region jumped 32.2% in the second quarter year-over-year, according to real-estate services firm JLL. Yet vacancy rates for industrial real estate are also rising, reaching 4.1% in the second quarter after bottoming out at close to 3% late in 2022, when experts said hot markets like Southern California were effectively full.

The rush to find storage sites has slowed to a crawl: Newly-leased space fell by nearly 36% in the second quarter, according to Cushman & Wakefield, to 141 million square feet, as consumer spending pivoted from goods to services and big retailers sought to burn off excess inventories. The gap between falling demand and rising prices is in part the result of particular dynamics of the industrial real-estate market, experts say, where warehouse operators and their customers typically sign deals for three to five years, basing leasing decisions on long-term prospects rather than short-term market conditions.