Warehousing & Distribution Centers look to rebound, the question is when?

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The Warehousing & Distribution Center market is looking to rebound from the deepest slump in recent memory. The question for both operators of warehouse space and real estate brokers is when will business begin climbing out of the slump?By George Lauriat, AJOTThe ill winds of the economic downturn have buffeted the Warehousing & Distribution Center business. On one side, the collapse of the real estate sector has dampened construction of new warehousing space and in existing space, rents have fallen and vacancies increased. Additionally, Warehouse & DC operators have witnessed reduced inventory from their clients and pressure for lower warehouse rates, that have in turn hurt bottom lines. And this is a warehouse/DC market vastly different from that of twenty years ago or even a decade ago. Coincidentally with the demand for more value added services for warehouse customers, has been the increase in 3PL ownership or control of space. As a result, warehousing is no longer just a link in the supply chain but a cog that touches each phase along the way to destination.
For Warehouse & DC operators and for those companies either selling, building or developing facilities, space must indeed seem like the final frontier. There is an abundance of space available and even with the slow down in development, the availability warehouse space is expected to grow over the next few quarters.
Colliers International, a global real estate firm, reported in its first quarter publication Highlights (an ironic name for the current market) released in May, “Rapidly deteriorating fundamentals and a moribund financing market pushed warehouses development activity to just 43.2 MSF, a substantial drop from 153.5 MSF under construction in the third quarter of 2007 and back to levels last seen in early 2003. First quarter completions totaled 30.2 MSF, a sizable drop from the fourth quarter when completions were 46.5 MSF. New supply for the year-ago period was 44.4 MSF. Next quarter’s construction numbers are anticipated to go even lower and stay at sub 20 MSF for the balance of the year.”
Laura Stone-Mortimer, Senior Economist, VP
CBRE Torto Wheaton Research, a Boston, Massachusetts-based firm associated with the global real estate firm of CB Richard Ellis, when asked by the AJOT about deferred or postponed warehousing projects replied; “Looking at the TWR Dodge Pipeline Product, there has been an increase in the amount of deferred warehouse projects nationwide. Total deferred projects for 2007 were 358, while there were 658 in 2008 and a total of 302 projects in the first quarter of 2009. The top 10 markets for deferred projects in 2009 are Denver, Phoenix, Philadelphia, Orlando, Riverside, Jacksonville, Detroit, Las Vegas, Chicago, Oakland.”
One exception to the rule is that the larger projects seem to be still moving ahead, despite the economic woes. To this point, Stone-Mortimer added that for the market were buildings are actually under construction or ground-broken, “there is 66 m/sf to be completed in 2009/2010. Of this, about 30 m/sf is in buildings at least 400,000 sq/ft.”
While the news for the warehousing sector, is not good, in some respects the numbers are out of context to what is taking place in the market as a whole. Hagood Morrison, head of industrial brokerage and co-manger of the Charleston, South Carolina office of Colliers Keenan (part of Colliers International). Morrison, who has been on the banking end as well real estate side of the business, specializes in the properties with a logistics element. Among the projects that Morrison has worked on are a 460,000 sq/ft Sams Club Warehouse lease, a 265,000sg/ft Continental Terminals lease for Starbucks East Coast DC and the sale for $20 million of Chevron’s North Charleston Terminal.
In an interview with the AJOT, Morrison, likened the market to a college football team that graduated a big senior class and had just recruited some highly ranked freshman to ca

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American Journal of Transportation