Analysts say that for now, demand from other retailers is expected to be subdued, which could support warehouse occupancy and rent levels.
Even before Covid-19, rents, occupancy levels and sales volumes of industrial real estate were rising. They have increased even more during the pandemic, as retailers led by Amazon, Walmart Inc. and Target Corp. have added record amounts of space at warehouses and distribution centers.
These growth trends are slowing in some markets, as Amazon is now subletting the warehouse space after reporting its slowest growth in nearly two decades in April. Amazon is one of the largest users of the US industrial sector, which owns or leases approximately 374 million square feet at the end of 2021, according to MWPVL International Inc., a Canadian supply-chain consultant that tracks Amazon demand.
The company went on an expansion tear during the pandemic to ensure that it can keep up with the sharp growth in demand from domestic consumers. Its slowdown is likely to frustrate some developers who were hoping to lease projects in Amazon’s way.
Property owners in some markets may also face new competition from Amazon’s plan to sub-lease at least 10 million square feet of warehouse space, and possibly triple that amount over time. -As well as responding to the influx of new supplies from developers. industrial market. Before the Amazon news, real-estate-analytics firm Green Street was forecasting about 400 million square feet of new industrial development in 2022.
“Amazon’s sublease space is “a new form of supply,” said Green Street analyst Vince Tibon.
Still, analysts say the industrial-property market remains healthy, driven by lower vacancies and demand, which remains strong from other retailers and larger users such as Walmart, FedEx Corp and DHL. Rents continue to rise in most markets as many companies add warehouse capacity to stock more goods and avoid supply-chain logjams.
“Other supply-chain companies are still growing, which is likely to offset the negative impact from Amazon,” said Evan Serton, a senior portfolio specialist at global investment firm Cohen & Steers Inc.
According to Kyle Turner, Equus Capital Partners Ltd., a private-equity firm, has already rented out more than half of the 11 million industrial space that is in the pipeline in high-growth states such as Arizona, Florida and Virginia. Is. Investment Director.
“You start doing the site work, pouring the foundation and the tenant comes along and you lease it,” he said.
Still, real-estate-services firm CBRE Group Inc. estimates leasing volumes to be 850 million square feet this year, down from last year’s record 1 billion square feet, partly due to limited supply.
Investor appetite for shares of industrial-space companies has also waned recently. According to Green Street, shares of industrial real-estate investment trusts have fallen an average of about 22% this year, compared to 13% for the broader REIT index and the same for the S&P 500. Prologis Inc., the largest industrial REIT, is also below average, partly because of negative market reaction to the proposed acquisition of rival Duke Realty Corp.
Industrial property sales volume fell to $6.5 billion in April, down 43% from the same month last year, according to MSCI Real Assets. Market participants say a large part of that decline was due to rising interest rates, which reduce returns from rising credit costs.
Market volatility and rising rates are prompting some buyers to request new terms on signed deals.
“We’re seeing some conversations about some of the assets that have gone under contract,” said Ken Hedrick, executive managing director of Newmark Group Inc., a commercial-asset-services firm.
The expansion of Amazon’s logistics centers went into hyperdrive when the pandemic hit. The warehouse market was already tight at that time due to the growth of online retail in the years leading up to March 2020.
“If I put you in charge [Amazon] And the world was closing in, the first thing that comes to your mind is: ‘Oh my god, we’ll have orders to explode. “We have to do everything we can to achieve as much capacity and space as we can,” said Mark Wolfratt, president of MWPVL.
According to MWPVL, Amazon’s portfolio of US industrial space grew from 275 million square feet at the end of 2020 to 374 million square feet at the end of 2021. Before the recent news of Amazon’s slowdown, MWPVL had estimated that Amazon would grow to 460 million square feet this year.
MWPVL has now reduced its 2022 forecast to 430 million, which is higher than the previous year, but not as much as previously estimated.
“It is like a goods train going down the tracks. You can’t hold a dime,” said Mr. Wolfratt.
This story has been published without modification to the text from a wire agency feed