Rising Transportation and Supply Chain Costs Boost Industrial Real Estate Rental Activity


Data recently released by Los Angeles-based industrial real estate developer CBRE indicated that rental volume for the U.S. industrial market is on track for a new annual record in 2021, with full activity through July. , to 587 million square feet (SF), an annual gain of 52%.

If this level of rental activity continued, CBRE said 2021 would exceed 2020, the current record, to CHF 713.3 million. In addition, he noted that robust demand, coupled with a national vacancy rate of 4.0%, led to an increase in average rents of 9.7%, dating back to August 2020.

The company explained that significantly higher transportation costs, which are rising faster than rental rates, are contributing to the increase in rental business. This manifested itself in the form of what he called a high demand for goods, as well as persistent delays at ports, which resulted in increases of over 230% for shipping a single 40ft container from Shanghai. at New York Harbor. / New Jersey and Port of Los Angeles, according to data from Drewry Supply Chain Advisors, according to CBRE.

And he also observed that air travel is still “a much more expensive option,” even against the backdrop of rising shipping costs, too, with average air freight rates rising 14% per year, the data shows. by Clive Data Services.

“CBRE Supply Chain Advisory reports that transportation costs are typically half of an occupant’s total logistics expenses, but can easily reach 70%, while fixed costs for facilities (including real estate) are only 3% to 6%, ”CBRE said.

And as supply chain costs have risen, CBRE said occupants are keen to outsource distribution and warehousing services, with 3PLs leading the pack, having nearly doubled their rental volume since last year. beginning of the year through July, to reach 121 million square feet of industrial bulk space, for a market share of 31.3%.

The top three are: General Retail & Merchandise, at CHF 96 million (24.8% market share), and E-commerce, at CHF 52 million, (13.8% market share).

“Limited availability is a major concern when occupants have an immediate need for a change of space,” said Joe Dunlap, managing director of CBRE Supply Chain Advisory. “However, the fixed costs of the facilities (largely determined by location, space, NNN real estate rates (triple lease), building type, etc.) are not the only concern. Trade-offs between rising transport costs and variable facility costs (largely related to volumes, degree of automation, types of jobs, workforce, productivity rates, wage rates / benefits / taxes, days of operation / hours of the week, etc.) versus fixed facility costs, inventory holding cost, reverse logistics, and other logistics costs. Occupants clearly understand that these cost elements individually have increased and have tradeoffs. ”

Dunlap added that occupants don’t necessarily actively expand national warehouse space unless that tipping point changes in their operations and tips the balance in those tradeoffs.

“For example, occupants who are experiencing dramatic growth might need additional storage space,” he said. “Conversely, those experiencing a contraction in sales might feel the need to reduce storage space. Depending on the situation, occupants going through mergers, acquisitions or divestitures could see increases or decreases in warehouse space requirements. Businesses concerned with business continuity might find the need to create inventory redundancy and therefore additional warehouse space requirements. And, businesses looking to increase customer delivery speed or more specifically transit time may also find the need to change warehouse needs. “

As to whether the 3PLs will continue to aggressively lease large amounts of warehouse space for the foreseeable future, John Morris, executive general manager and head of CBRE’s industrial and logistics business for the Americas, said that There are exceptions, but in general 3PLs often do not rent space. independent of a customer contract and the lease term generally coincides with the duration of the customer contract.

“Therefore, 3PLs will not aggressively lease large amounts of warehouse space without corollary commitments from customers,” he said. “That said, the 3PL segment has always been the largest occupant segment. Comparing August 2021 to the same period in 2020, 3PLs accounted for around 31% of industrial lease transactions over 100,000 square feet, up from 24% during the same period in 2020. As companies decide to operate l ‘in-house or outsourced warehousing space, many will focus on running their business and continue to leverage the in-depth expertise and value proposition offered by 3PLs, especially with logistics needs ever-changing, disrupting supply chain and changing business.

About the Author

Jeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics management, Modern material handling, and Supply chain management review. Jeff works and lives in Cape Elizabeth, Maine where he covers all aspects of the supply chain, logistics, freight transportation and material handling industries on a daily basis. Contact Jeff Berman


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