Almost half of the 167 million square feet of U.S warehouse space currently under construction—72 million square feet—is already precommitted to tenants, primarily e-commerce, third-party logistics and retail users, according to a new report from CBRE Group Inc.
At 3.2 million square feet, Denver is ranked 10th in the nation for warehouse space under construction. When it comes to preleasing, however, Denver comes in at No. 1 with 70.3 percent of warehouse space under construction precommitted. The rate far exceeds the current national ratio of space under construction that is preleased to occupiers, which is 43 percent, and the 17-year national average, which is 38 percent.
“Warehouse users are aggressively leasing space as soon as they have the opportunity, often even before the construction has been completed on the property. This is unusual compared with historical activity,” said David Egan, Americas head of industrial research, CBRE. “The high level of new deliveries will allow more occupiers to utilize modern space and will open up redevelopment opportunities for older product.”
“Preleasing is consistently strong around the Denver market and not limited to one area or type of product. For example, the 421,499-square-foot Hub 25 project in Denver’s north-central submarket is just delivering and is 70 percent leased,” said Jeremy Ballenger, senior vice president, CBRE Industrial & Logistics Services in Denver. “Demand for high-quality, well-located industrial space hasn’t let up, but developers have also read the market well to this point in terms of new supply. Historically, Denver was not known as a preleasing market—so it’s telling that the dynamic has shifted notably, in large part because of e-commerce.”
When looking at the 10 U.S. markets with the largest amount of warehouse construction underway as of first-quarter 2017, 36 percent of space under construction is precommitted. Following Denver’s leading rate of 70.3 percent, Kansas City is next at 54 percent of new warehouse construction space precommitted, trailed by Chicago (51.3 percent), Indianapolis (50.6 percent) and New Jersey (43.3 percent).
“Warehouse development is at its highest level since 2000. Yet brisk development activity continues to lag demand, and given users’ pressing need for modern facilities and the lack of adequate space, there is no slowdown in sight for new warehouse leasing,” Egan said.