The Impact of COVID-19 on Warehouse Real Estate

The global pandemic has significantly affected the warehousing industry, with the need for third-party logistics and warehouses skyrocketing due to increased online shopping. According to Senna De La Cruz of Colliers, this resulted in a boom in the industrial market, causing industrial rents to increase by 20% per quarter over 2021. Developers struggle to keep up with the demand, creating a scarcity of vacant warehouse spaces and a need for specific types of square footage layouts.

Challenges in Finding Smaller Warehouse Spaces

Finding smaller warehouse spaces has become increasingly difficult in some markets, especially those with limited land availability. Infill markets, where newer and smaller spaces are in high demand, often face push-back from cities and crowded conditions. The pandemic has also made it harder for smaller businesses to compete with larger companies in the warehouse space market. De La Cruz believes companies will begin to feel the effects of the current market ease, and while more buildings may become available, “keep in mind that we’re already at a high benchmark in terms of pricing and demand.” He still feels strong companies continue to wait for available warehouse spaces, making discounts and price drops unlikely.

Cold Storage Facilities: A High-Demand Niche

Cold storage facilities are in high demand and short in supply. De La Cruz states many companies needing cold storage “have had to resort to built-to-suit opportunities to secure warehousing space.” In these arrangements, a company partners with a developer who constructs a custom building for them, which the company then leases for a predetermined period.

Developers are now focusing on larger, million-square-foot buildings in suburban and rural areas. Developing cold storage facilities can be expensive and requires niche education, but it is a potentially profitable sector due to the high demand.

Key Takeaways from the Episode:

• The COVID-19 pandemic has led to a boom in e-commerce and warehousing industries, making it essential for businesses to adapt and plan accordingly.
• Tenants should start exploring their options well before their lease expiration, potentially 12 months prior, to lock in rates at a lower market value.
• Being strategic and professional with negotiations can lead to better outcomes, especially in the competitive warehouse real estate market.

EP 386: Navigating Warehouse Real Estate with Senna De La Cruz of Colliers