Liz Young of The Wall Street Journal reports that warehouse tenants are experiencing significant rent increases as leases signed during the pandemic’s peak demand period come up for renewal. Despite higher vacancy rates, prices remain high due to limited new construction. Tenants renewing leases are seeing rents two to three times higher than five years ago, and some are considering costly relocations to lower expenses. Young writes:
Warehouse tenants are getting sticker shock all over again as they set out to renew leases that were signed at large premiums during a period of red-hot demand early in the pandemic.
Those high-cost leases are starting to expire, but prices for industrial real estate remain elevated in part because developers have hit the brakes on new construction, constraining new supply.
Tenants looking to renew deals struck in 2020 and 2021 are “staring at a giant increase,” said Mark Russo, head of industrial research at real-estate services firm Savills. Rents in some cases are “up maybe two or three times than they were five years ago,” he said. […]
Higher vacancy rates normally would lead to lower rents. But prices haven’t receded because of the particular dynamics of the industrial real-estate market, where warehouse operators and their customers often base their leasing decisions on long-term prospects rather than short-term market conditions.
Developers have pulled back construction of new buildings, constraining the new space that’s available and maintaining upward pressure on pricing. […]
Still, companies are signing up for rents that are far higher than before the pandemic, said Craig Meyer, president of real-estate services firm JLL’s Americas industrial brokerage. Tenants “can do better than the market today, but still, doing better than the market is going to be 50% more than what they were paying,” he said.
Some companies are finding that getting a break on leasing rates can mean packing up and moving, which can be expensive. […]
“It was worth us paying to pull all the inventory out, move it to a different building, set up our IT systems again,” said Brit Videbeck, the company’s chief supply-chain officer.
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