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Inflationary pressure hits new warehouse leasing

Rents to replace expired multi-year warehouse leases are skyrocketing as real estate companies aim to incorporate the higher prices they took during the pandemic into their new contracts, according to a new report.

According to a report by the real estate company CBRE Group, rental prices for industrial real estate are on average 25% higher than the prices at the end of the five-year contract that expired this year. Ltd

Released on Monday. Increases due to strong consumer demand and a surge in e-commerce business causing a surge in distribution space extend higher supply chain costs to customers with long-term contracts that isolate customers from rising warehouse costs. doing.

“Demand for industrial space hasn’t eased,” said John Morris, head of CBRE’s industry and logistics, adding that the company has never risen to such a high level.

CBRE said in a previous report that the US national average vacancy rate fell to 3.6% in the third quarter, down from 4.3% in the previous year, and the lowest level of data dates back to 2002. Space is particularly tight at major distribution hubs such as the Inland Empire in Southern California, where vacancy rates have recently dropped to 0.7%.

Lease payments in the third quarter were up 10.4% year-on-year, according to CBRE. Many leases have expired and the new CBRE report suggests that landlords are looking for a significant increase from tenants who have signed multi-year leases before the pandemic overdrives demand for industrial real estate. doing.

The rate of increase compared to long-term contracts that CBRE plans to renew in the third quarter of this year is stronger in high-demand regions. Rents to replace leases expiring this year in Inland Empire near the ports of Central New Jersey, Philadelphia, Los Angeles and Long Beach were more than 60% higher than rents for leases launched in 2016.

Brent Moritz, an associate professor of supply chain management at Penn State University’s Smir Business College, said shippers are accepting rising prices for warehouse space near densely populated areas and are hungry for goods that expect fast delivery. It states that it can serve consumers.

The high cost of servicing these customers “will not be temporary as long as consumer demand remains strong,” he said.

Rising warehouse rents are part of a significant increase in the cost of the entire supply chain, from raw material prices to shipping charges for goods. Transportation companies that have achieved high rates in this sector’s spot market for the past year are now considering incorporating pricing into long-term contracts that they are negotiating with shippers.

According to freight market data provider Xeneta, marine container prices for contracts over 88 days rose 16.3% in November, 121.2% higher than the contract prices set a year ago.

Warehouses in the Riverside-San Bern in California are an important step in the US supply chain. The region’s warehouse vacancy rates are low, coupled with port delays, creating the worst of the holiday season.Photo: Sam Rosenthal

According to Morris of CBRE, warehousing typically accounts for 4% to 6% of the logistics cost of the entire enterprise, well above labor and transportation costs. “But strategically, there is little that an occupant can do to reduce warehouse costs,” he said.

Many retailers and manufacturers are passing on rising supply chain costs to their customers, driving fuel inflation, which reached its 30-year high in October.

Officials are currently reviewing the valuation, saying the rise in prices is likely the result of a temporary impact of pandemic-related supply constraints. Federal Reserve Chair Jerome Powell said last week that the central bank may have misjudged the duration of inflation, and it was time to abolish the word “temporary” when explaining price increases. He said there was.

Logistics report details

Write to Lydia O’Neal (lydia.oneal@wsj.com)

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Inflationary pressure hits new warehouse leasing

Source link Inflationary pressure hits new warehouse leasing

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