Topping the country are Northern New Jersey ($18.50), Puget Sound ($16.44), Los Angeles ($16.20) and Inland Empire ($10.20).
Rents for modern warehouse product are surging, a trend acutely felt in the most desirable logistics locations, or prime submarkets, across the country, according to a report from Newmark.
In at least six of the nation’s prime industrial warehouse submarkets, average taking rents for new construction are poised to cross the $10 per square foot mark—or have already crossed it.
A prime submarket is often centrally located within a metropolitan area and offers access to critical infrastructure, including airports and seaports, major highways and rail lines—fundamental attributes for tenants focused on reducing transportation costs and transit time.
Northern New Jersey ($18.50), Puget Sound ($16.44), Los Angeles ($16.20) and Inland Empire ($10.20) have exceeded the $10 milestone. Chicago and Miami are on the cusp.
Since 2019, taking rents for new construction have increased by an average of 24.3% across prime submarkets, with some observing almost double that growth.
C.J. Follini, Principal, Noyack Capital Partners, tells GlobeSt that “The current disruptions throughout global supply chains are furthering the ‘pull-forward’ of the industrial cycle in that procurement departments and buyers are doubling their product and supply purchases and storing them in domestic warehouses just to meet the holiday season’s anticipated demand.
“Pandemic-related growth of grocery e-commerce and same-day delivery alone compressed five years of the evolution of consumer behavior change into a single year. Not surprisingly, the controlled-climate area of the supply chain lacks sufficient infrastructure, so it is an area we will pay close attention to moving forward.”
Spreading Rent Growth
The substantial savings on transportation costs achievable in these key locations allows occupiers to absorb escalating rents, which make up a smaller share of total operating costs. Given the combination of high rents and limited development, infill and redevelopment projects will become increasingly common in prime submarkets.
Tenants that cannot find suitable space or are unable to pay elevated rents will continue to spill over into adjacent submarkets, helping to drive rent growth across market geographies.