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December 2022

Significant Drop in Warehouse Development Predicted for 2023

Warehouse Construction

From “Prologis Predicts Significant Drop in Warehouse Development”. Read the full article at GlobeSt.com.

By Paul Bergeron

Prologis is predicting that U.S. warehouse development starts will drop to a 7-year low, as rent growth exceeds 10%.

Starts are already 30% below their peak in Europe and Prologis expects that to continue in the US. The warehouse property owner says the rapid rise in the cost of capital is the culprit and starts will fall by 60% to less than 175 million square feet in 2023.

“A pullback of this magnitude would create a shortage of space in 2024,” according to Prologis’ report. “The pipeline will drop from over 500 million square feet in Q3 2022 to 275 by year-end 2023.”

However, low vacancy will produce another year of double-digit rent growth.

“Even if new demand fell to zero, the national vacancy rate would increase by just 260 bps to 5.9%, well below the long-term average,” the firm said.

Adam Roth, executive vice president of industrial services at NAI Hiffman and director of NAI Global Logistics, agreed.

“The combination of higher capital cost and record construction pricing will greatly reduce the development of speculative industrial space,” Roth said. “I see a bigger drop off in 2024 as projects already started will be delivered in 2023. Fewer starts will occur in 2023 resulting in less deliveries in 2024.”

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