Warehouse space hasn’t been this tight since the dot-com boom

Availability nationwide dropped to 7.2 percent in the second quarter

Warehouse space is at its tightest level since the first dot-com boom, and it’s driving tons of business.

The second quarter saw availability fall to 7.2 percent, the lowest level since 2000, as demand continues to outpace supply, according to CBRE data first reported by the Wall Street Journal. Availability has now dropped for a record 32 straight quarters.

Experts largely attribute the fall-off to growing demand for space as e-commerce grows. That’s prompting some owners to expand the scope of their operations, including by adding so-called last-mile delivery operations to their properties.

The demand is driving prices to record highs, particularly for distribution centers in urban areas. Los Angeles’ South Bay submarket, an industrial hub near the Ports of Los Angeles and Long Beach and Los Angeles International Airport, is seeing rental and sale prices for Class B properties rise to Class A levels as tenants and investors jostle to get a foot in the door.

In The Irvine Business Complex near John Wayne Airport the re-development of over 4,000,000 square feet of industrial property in favor of high-density residential has created tremendous upward pressure on rents and sale prices.  Tenants seeking warehouse space in the area are forced to look in West Orange County (Garden Grove, Cypress, Huntington Beach) or move to the Inland Empire.  As a result, these markets have experienced steep price increases as well.

Not surprising, the average price per square foot in New York has grown as by as much as 81 percent in some areas. Nationally, industrial sales volume by dollar amount has doubled since 2012, according to data from PwC and the Urban Land Institute.

The tight warehouse market has produced strong returns for industrial real estate investment trusts. Last year returns for REITs were 24 percent, higher than the single-digit returns in other sectors.

Blackstone has taken notice and spent more than $10 billion buying industrial REITs and properties, including a $7.6 billion purchase of Gramercy Property Trust.

But not everyone is hot on industrial. Sam Zell, the notorious doomsayer and Equity International founder, thinks that developers are building too much and that it will outpace demand  [WSJ] — Dennis Lynch

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