The Great American Warehouse Building Boom Is Over
Date Posted: December 19, 2023
Posted In: Discussion,
From The Wall Street Journal: Higher interest rates are choking off construction of warehouses that feed America’s growing e-commerce appetite, putting an end to a building boom that remade vast swaths of the country.
Over the past decade, warehouses became an investor darling as investors such as Blackstone and Singapore sovereign-wealth fund GIC bought up vast portfolios. During the pandemic, developers plastered cities and suburbs with logistics facilities to profit from surging rents and seemingly insatiable demand from Amazon and other e-commerce companies.
Now, many large investors are cutting back. Industrial property construction starts tumbled 48% in the first nine months of the year compared with the same period in 2022, according to data company CoStar. That was the largest drop for that period since 2009.
The dollar volume of industrial real estate sales fell by 45% in the third quarter from a year earlier, according to MSCI Real Assets.
“It was unsustainable, but no one knew how long this party was going to last,” said Vince Tibone, managing director at analytics firm Green Street.
Higher debt costs and slowing leasing demand are the main culprits. The rates on many types of commercial mortgages have roughly doubled over the past year, and land prices haven’t fallen enough to make up for that, brokers say, making it harder to pay for construction.