Thank you for sharing!

Your article was successfully shared with the contacts you provided.

BOSTON-Though demand for warehouse space continues to weaken, a new report from Torto Wheaton Research reveals the impact has not been uniform across all property types. Report author Laura Stone Mortimer, a senior economist with the Boston-based firm, says warehouse performance varies substantially by asset size and type of market, with mid-sized assets between 100,000 sf and 350,000 sf exhibiting the greatest strength.

Historically, the researcher says, economic downturns have a much greater impact on larger assets as businesses scale back in the face of falling consumer demand, and the current period is no exception. She notes the availability rate for assets larger than 350,000 sf slowly began climbing in Q2 2007, rising to rise to a near record 12.7%. By comparison, she continues, mid-sized buildings have experienced continued declines in availability, while availability levels for small assets under 100,000 sf have remained stable.

According to Stone Mortimer, the difference is just becoming apparent but will widen over time. As she points out, the majority of new completions in the past few years has involved large buildings, and the number of such completions continues to rise even as demand for this type of space has flattened. Furthermore, she adds, some 70% of new buildings at the larger end are leased rather than corporate owned, with the overall availability currently at about 17%.

“While a large portion of industrial space is typically owner-occupied, this trend has changed for the large warehouse sector, which remains particularly vulnerable to economic slowdown and weakening demand,” observes Stone Mortimer. At the same time, she emphasizes, net absorption remains relatively evenly distributed among the different asset classes and the large rental warehouse sector has yet to experience weaker demand on an annualized basis. Nonetheless, she maintains the large warehouse sector remains the most vulnerable to weaker demand.

If there is a positive in the situation, she remarks, it’s that new supply remains contained relative to historic levels. Consequently, despite rising availability rates and slowing absorption, rents are holding steady in the majority of markets. In addition, Torto Wheaton does not foresee a prolonged or deep recession, limiting potential damage to the large-warehouse sector.

“The largest institutional investors typically seek the Class A, or large, new distribution or logistics parks, viewing this asset class as a long-term play, and they are still investing despite possible tighter lending standards and a weakening economy,” she comments. “We feel confident…that the industrial market will not suffer the same fate it did in 2001. Our view is that, although demand is weakening, absorption will remain positive but below historic trends, through 2009.”

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

Dig Deeper

GlobeSt. NET LEASE Spring 2021Event

This conference brings together the industry's most influential & knowledgeable real estate executives from the net lease sector.

Get More Information


Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.