Commercial Real Estate News
Record Warehouse Development Driven by Aging U.S. Inventory
According to CBRE research, the 43-year average age of existing U.S. warehouse inventory--nearly 28% or 3.4 billion sq. ft. of which is more than 50 years old and at risk of functional obsolescence--justifies the nation's record 627 million sq. ft. of new warehouse space currently under construction. Nevertheless, this older, largely urban-infill inventory is more than 95% occupied, mainly by local or regional logistics operators that highly value proximity to customers and labor more than functionality.
Major e-commerce and retail distributors, on the other hand, require highly functional modern facilities to process a high volume of goods every day. Demand from these occupiers alone more than justifies the record level of new development.
Only 6% of total U.S. warehouse buildings have been built within the past 10 years, yet they account for 18.6% of total inventory by square footage due to a more than 25% increase in average size. Large occupiers generally demand big-box facilities of at least 200,000 sq. ft. to serve a growing online consumer base, hold more inventory and accommodate voluminous distribution operations near ports of entry and manufacturers.
The average age of U.S. warehouse inventory ranges from 18 years for the largest segment (1 million sq. ft. or more per building) to 45 years for the smallest segment (less than 50,000 sq. ft. per building). Smaller buildings are typically in urban-infill locations with higher land values and higher barriers to entry, making it difficult to add new inventory.
Markets with the newest inventory--the Inland Empire, Phoenix, Indianapolis, PA I-78/I-81 Corridor and Houston--have an average building age of between 28 and 37 years. This makes these major industrial hubs highly desirable for the biggest logistics operators and retailers. Sixteen percent of the total warehouse buildings in these markets was delivered within the past 10 years, more than double the national average.
Markets with the oldest inventory--Northern and Central New Jersey, Cleveland, Detroit, Philadelphia and Los Angeles--have an average building age of between 47 and 60 years. Given the continued growth of e-commerce and retailer omnichannel offerings, warehouses approaching obsolescence in these markets will present opportunities for redevelopment, particularly in infill locations that support last-mile delivery.
