by Josh Bays, on Apr 25, 2016 3:11:37 PM
According to a recent article in The Wall Street Journal, Prologis, the largest owner of warehouses and distribution centers, reported increasing rents and decreasing its budget for new construction, despite demand for warehouse space as vacancy rates decline nationwide.
According to statistics for the first quarter of 2016, the vacancy rate for warehouse 
space was 5.9%, slightly down from 6% in the fourth quarter of 2015. As the supply of real estate for distribution centers decreases, the quoted rental rate for warehouse space rises. The national average quoted rental rate for leased warehouse space is $5.51 per square foot, an increase of about 2.23% over the end of 2015.
Supply & demand in real estate for distribution centers
“It’s a basic supply and demand issue. The rental market for logistics users is tightening because supply is decreasing, but demand is increasing. This leads to higher rental rates and the gulf will widen, until we hit another part of the economic cycle,” said Josh Bays, Principal, Site Selection Group.
Real estate affects site selection strategy for distribution centers
The tightening rental market for distribution centers is impacting site searches for new distribution and light manufacturing operations. If project timelines allow, more companies are considering build-to-suit options in addition to existing buildings to ensure that the lack of real estate availability is not leading to a poor site selection decision. In markets such as Los Angeles, where the vacancy rate is 2.4%, the right building may be proposed and waiting for a tenant before construction can happen. There are also several development-ready sites throughout the country that may be just as ready to serve a distribution center’s requirements.
Vacancy rates and average rental rates in the 20 largest U.S. markets
Site Selection Group researched the vacancy rates and average rental rates in the largest 20 U.S. real estate markets. That information is in the table below:
Real Estate Statistics by Market
| Market | Total Rentable Bldg. Area | Vacancy Rate | Quoted Rental Rate |
|---|---|---|---|
| Chicago, IL | 1,098,010,912 | 6.8% | $5.35 |
| Philadelphia, PA | 967,684,855 | 7.4% | $4.25 |
| Los Angeles, CA | 925,593,854 | 2.4% | $8.47 |
| Northern New Jersey | 747,294,105 | 6.5% | $5.96 |
| Dallas-Fort Worth, TX | 695,011,863 | 6.4% | $4.35 |
| Atlanta, GA | 606,989,625 | 7.2% | $3.83 |
| Riverside-San Bernardino, CA | 544,936,115 | 5.1% | $5.64 |
| Houston, TX | 510,644,683 | 5.2% | $6.09 |
| Detroit, MI | 509,634,044 | 4.3% | $4.65 |
| Cleveland, OH | 461,480,858 | 5.0% | $3.57 |
| Boston, MA | 383,658,020 | 6.9% | $5.59 |
| Long Island, NY | 328,089,921 | 3.6% | $13.25 |
| West Michigan, MI | 309,842,013 | 4.2% | $3.34 |
| Minneapolis, MN | 301,725,622 | 4.8% | $5.87 |
| Cincinnati, OH | 295,996,161 | 6.0% | $3.43 |
| Indianapolis, IN | 295,862,641 | 7.2% | $3.74 |
| Charlotte, NC | 287,088,987 | 7.6% | $3.69 |
| Seattle, WA | 281,428,949 | 4.1% | $6.24 |
| Phoenix, AZ | 281,103,214 | 10.1% | $5.96 |
| Milwaukee, WI | 276,624,521 | 6.5% | $4.10 |
